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Problematic terms in the demonetisation debate

28 Nov

I have a new post up on Prof. Ajay Shah’s blog discussing the Government’s move on demonetisation, and the problems with the way the discourse on demonetization is being shaped, and the probable ripple effects of this move on society. Here is the link:

The post is reproduced below:
The Government’s move to demonetise Rs. 500 and Rs. 1000 notes, and place restrictions on withdrawals, exchanges and deposits has attracted both appreciation and criticism. This piece analyses the framework of this discourse and its implications for the economy and society. Terms like “demonetisation”, “corruption”, “inconvenience and hardship”, “implementation” form the basis of this discourse. Interestingly, most of these terms have originated from the Government itself. This piece argues that by confining ourselves to these terms, we fail to grasp the true nature and impact of this measure.

The economic context

The Indian government’s move to withdraw the legal tender status of Rs. 500 and Rs. 1000 notes has had widespread effects on the economy. Holding these beyond a certain notified date will be
illegal. Those left with these notes after December 31 will lose their wealth by a corresponding amount. There are daily reports of the plight of urban daily wage labourers, farmers and those in unbanked areas.

The economic impact of this measure is being contested. A great piece by my colleague Suyash Rai argues that the costs of imposing this measure far outweigh the benefits are likely to affect the poor and under-banked areas disproportionately and may have a modest impact on corruption at best. Others have played down the likely impact on the poor and rural areas. They have supported the demonetisation as a courageous and bold step towards a larger effort at wiping out endemic corruption and black money.

What is already safe to assert is that for better or for worse, there has been large-scale disruption within the economy. Print and electronic media, social media, daily conversations are consumed with conversations around the principle and implementation of demonetisation, and around issues of corruption and black money. Yet, most of this discourse follows a predefined framework, using terms and nomenclatures propagated by the Government. The framework of this discourse is problematic, and this framework itself may have deleterious effects on our society.

Problematic term: “Demonetisation”

Characterising the government’s move as “demonetisation” is the most problematic fallacy of the current discursive framework. In this case, the Central Government has said that the RBI will refuse to honour its promise to provide legal backing to Rs. 500 and Rs. 1000 currency notes. They will effectively refuse to honour the property rights of those holding them. Every time the RBI issues a currency note, it adds a liability to its balance sheet. By refusing to honour these notes as legal tender, the RBI will extinguish its liability towards persons holding them, in effect enriching itself. In addition, substantial restrictions have been placed on exchanging old notes for new, withdrawal and exchange of money. This is a substantial interference in the rights of people from accessing their own money. This is expropriation, not demonetisation.

In its broadest sense, expropriation refers to a taking of certain items or goods by the government by refusing to honour the property rights of those holding such items or goods. Bank nationalisation was an act of expropriation. The Indian government refused to honour the property rights of the owners of banks and transferred the ownership of the banks to itself.

Land acquisition is an act of expropriation.  The government expropriates the property rights of individuals. Land reforms undertaken in the 1940s and 1950s were acts of expropriation where property held by zamindars was transferred to the states by virtue of laws passed by them.

The Vodafone tax demand by the Indian government has been alleged to be an expropriatory action as Vodafone’s income is being expropriated by imposing an allegedly unfair tax on it. Expropriation need not be an absolute taking or extinguishment of property rights in all cases.

Even a high degree of restriction or interference with property rights has been held to be expropriatory in many jurisdictions worldwide. Therefore, the Government and RBI’s decision to (a) withdraw legal tender status, and (b) impose severe restrictions on withdrawals from one’s own account is definitely an act of expropriation.

This act of expropriation is singular, given the nature of the expropriation and the views of the political party in power. Two of its cabinet ministers favoured a debate early last year on whether the word socialist should remain in the Preamble to the Indian Constitution and its ally the Shiv Sena demanded the removal of the word (link here)! This same Government is now justifying this expropriatory act as a moral imperative.

The nature of the expropriation is much more problematic. There are at least three ways in which this expropriation is remarkable:

  1. In most cases, property rights of certain defined individuals or classes are expropriated. The owners of banks were identifiable individuals, and so were the zamindars who were expropriated when land reform laws were passed. In this case, it is not so. Property rights across the entire economy are being expropriated without distinction. At the same time, there is no single identifiable person who is being expropriated. This is likely to have societal consequences I will elaborate later.
  2. Governments usually expropriate rights, or assets – like wealth, mineral resources, land, intellectual property (through compulsory licensing). In this case, the medium of exchange in society is asset being expropriated. This is an expropriation of cash, not wealth. This is singular in the annals of expropriatory actions by governments worldwide. Many governments have demonetised currencies to combat hyperinflation, but no one has withdrawn legal tender status on currency notes in times of normalcy, and imposed restrictions on an individual’s ability to hold cash at the same time. In an economy that is almost completely cash driven, and where most households hold Rs. 500 and Rs. 1000 notes as means of exchange for sustenance, this is bound to have serious repercussions.
    Money is not just a medium of exchange and a store of value, it is also, as has been argued, a source of social prestige and psychological security. In a cash-based economy like ours, people primarily derive social capital and psychological security from money in the form of cash. This expropriatory measure has therefore arguably extinguished or imperiled the social prestige and psychological security of those who relied on cash money to provide these for them.
  3. Governments usually expropriate the rich to redistribute to the poor (at least ostensibly) or to create benefits for the public good (roads, highways, etc). Bank nationalisation expropriated the rich bank owners so that Indira Gandhi could use banks as agents of poverty reduction. Land reforms were done to expropriate zamindars and redistribute land to the poor. In other countries, governments expropriate owners of oil fields and mineral deposits so that the government can channel the benefits from such resources for the public good. Since this expropriation is economy-wide, everyone’s medium of exchange is being confiscated/ restricted regardless of whether they are rich or poor. However, the main brunt of the expropriatory action is on the poor. There are two main ideas being talked about with regard to what the government might do with the windfall in order to redistribute wealth to the poor. To clarify, neither the Government nor the RBI have stated or clarified on what they intend to do, and what legislative changes will need to be made. It is however worthwhile to discuss these as the two broad ideas that are being discussed –
    1. The government may improve its fiscal situation and use the fiscal space to provide income tax relief/ loan waivers. The poor are not going to benefit from income tax relief since only 4 percent of India’s population pays income tax. The Sixth Economic Census of the CSO (March 2016) finds that only 2.3 percent of non-agricultural establishments received financial assistance from financial institutions. This number is likely to be the same or even lower for agricultural establishments. Loan waivers are therefore going to have minuscule impact, and benefit only those who are well-off enough to access the formal financial system.
    2. The government may, through some legislative jugglery, recapitalise banks and kick-start lending. Again, the gains are going to accrue mostly to the rich and the middle class. It is debatable as to how the unbanked and expropriated 40 percent would reap the benefits of any bank-led redistributive measure since 40 percent of the country is unbanked (Census 2011).

This is therefore, a unique expropriatory measure that expropriates from everyone in society to benefit those who suffer the least “inconvenience” from the expropriation (more on this later).
Discussing this step as an expropriatory measure brings to the fore legal protections and requirements that are concomitant with expropriation: what is the legal authority for taking away the
property of individuals? Is compensation due to those who have been expropriated and if yes, in what form? What due process is applicable to expropriatory measures taken by the Government? Coining this expropriation demonetisation is putting lipstick on a pig in its truest sense.

Problematic term: “Corruption”

Equally problematic is the way this expropriatory action has re-defined the “corrupt” and “corruption”. All preceding actions against corruption taken by the Indian State in the past have been against those who have either evaded taxes or earned money by committing illegal acts. The issue was that certain people either evaded taxes or did something they were not supposed to, and such people had to be identified and punished. The voluntary disclosure scheme followed this overarching principle by encouraging people who did not pay taxes to come forward. The same principle is at play in the issue over identifying people who have stashed their illegal money abroad, and in the identification and prosecution of officials violating the Prevention of Corruption Act.

This expropriatory measure has the potential to re-define how people think about the corrupt and corruption. For one, the focus is now on confiscating corrupt wealth and black money. Identifying the corrupt and identifying individual acts of corruption has taken a backstage. Expropriation itself has become a mode of punishment. It is being suggestively implied that society has a chance to start again with a clean slate if black money is wiped out. The complete failure of the state to act against corruption is being used as an excuse to infuse society with a new kind of morality.

Second, corruption has now become a crime without a perpetrator. Multiple people I have talked to situate themselves as victims of corruption. A landlord who has built an illegal flat does
not give his tenant a lease-deed and accepts payments only in cash told me he was proud the Prime Minister had taken this step on behalf of honest people like him. An auto-wallah who confessed to driving without a permit and did not agree to go by meter railed against the corrupt during the duration of my journey. An Uber-driver praised the expropriation repeatedly while he ferried me. Close to the end of the ride he nonchalantly told me he had to drive carefully since the police had impounded his license the previous day. While these anecdotes hardly constitute statistical evidence, they are indicative of the fact that people go to great lengths to justify their actions as moral and honest.

However, the logic goes, everyone else must be corrupt if corruption is endemic enough to justify this kind of measure. This discourse is elevating the widespread cynicism and hatred against politicians, bureaucrats, the police, big business, small business and the media. Everyone feels like a victim and everyone else is suspect. But no one is a perpetrator or an agent. Everyone wants to sock it to the rich and the corrupt though no one knows who they are. So it is acceptable to take some punches yourself if the corrupt suffer in the process. The Government is at once elevating the pitch for shared sacrifice while also (most probably and hopefully, unintentionally) exacerbating the conditions for social and institutional distrust. Issues of class envy and class conflict are already coming to the fore and may get further magnified in the future.

This, in turn, is likely to create a collective psyche where no individual or institution can be trusted. No one is deserving of empathy since their corruption might be the cause of your suffering. This is happening even though the Government is at pains to explain that this will be one among many previous and future steps against corruption. By re-framing corruption as a crime without an agent through this singular action, the Government has perhaps unwittingly created the conditions in which the nature of discourse regarding solving corruption in society changes permanently.

This is a simple expropriation at its core. The object and effect of this measure are predominantly expropriatory. The confiscation of black money is an incidental benefit by design. The rhetoric of sweeping up black money and the design of the expropriatory measure do not match up to each other.

Problematic terms: “Inconvenience”

It is inconvenient to have to switch to a mobile wallet and stand in an ATM queue for 2-3 hours once a week. Many people I have spoken to are ready to suffer this inconvenience if it helps achieve the stated objective of finishing off black money in the economy. When individuals who depend on their daily wage to feed themselves and their families are laid off, this cannot be called an inconvenience. The tribulations of agricultural workers and small entrepreneurs cannot be called an inconvenience if their enterprise fails due to the lack of liquid cash. Sectors of the economy that function largely in cash are suffering disproportionately compared to those with access to plastic money and mobile wallets. There is an attempt to normalise and standardise the way the effects of this expropriation are to be thought about by using this one word to describe the depth and diversity of suffering within the economy.

There is a breadth of literature on the impact of income shocks on those who are at the lower end of the poverty line. Income shocks push many just above the poverty line back into poverty. They also push many into debt, since their savings are not sufficient to sustain themselves. Small incidents like an unanticipated illness have an outsized impact on their long-term well-being and potential for growth. The current actions of the Government have administered just such an income shock on the poorest.

The Government should have taken much more aggressive measures to protect the worst affected economic classes in society, but calling this suffering an inconvenience allows it to paper over this failure. Had the Government instead defined the consequences of this measure as a “scarcity” of currency, corresponding actions may have been discussed, and some implemented. Government actions and popular discourse during times of scarcity are motivated by a desire to ensure everyone has adequate rations to sustain themselves.

Scarcity creates its own social dynamics. It creates new intermediaries in the market – when food is rationed, black marketeers emerge to supply food at above-market prices. After this expropriation, intermediaries are delivering white money for black for a commission. The war against corruption is creating new forms of corruption.

Mobile applications with horrifying names like “Book my chotu” are advertising hired help who can go stand in queues for those who can afford it. Most troublingly, scarcity changes relationships in society by creating new power dynamics. Hitherto bankers were service providers. Now they are agents of rationing. They have asymmetric power compared to those standing in the queues before them. It is a credit to them that they are still providing services under conditions of extreme difficulty. On the other hand, like any agent of rationing, they are now exposed to mob fury and mob violence. The customer has now become a beggar. His/her money is locked up in a bank. The psychological security gained from holding money that I alluded to earlier has vanished. Whereas earlier he or she could demand service, now they pray they get to exchange\withdraw money, and can suffer at the hands of a capricious banker.

Conclusion

Some have argued that even if the Government wanted to take this step, it could have been timed better. But what is a good time for extinguishing property rights? Any time is equally good and equally bad. Others have argued that the step has been implemented badly. But expropriatory actions are judged first and foremost by the validity of the expropriation itself. We have been too quick to assume the validity of this measure and debate its implementation. As long as the terms of the discourse are set by those who introduced the measure, we will also be confined to their predefined moral straitjacket of honesty versus corruption, sacrifice versus timidity and sincerity versus venality. Empathy will be a casualty.

The Government has framed this step against corruption as a moral question. Should we not ask a moral question of the Government: Is it ethical for any State to expropriate the predominant means of exchange from everyone in society, especially in a poor cash-dependent economy?

Ram temple to Ramayana museum: 

18 Oct

India has now witnessed a three decade long agenda of revivalist Hinduism centred around the city of Ayodhya.  The latest proposal to construct something in Ayodhya is however a bewildering move given how symbolic the agenda of constructing a Ram temple in Ayodhya is to the Hindu right wing of the country. 

As per the news report linked below, the Union Tourism Ministry has proposed the construction of a Ramayana museum in Ayodhya. Given the hyper masculine image this government likes to project, building a museum instead of a temple sounds strangely emasculating. On the other hand, as gimmicks go, it’s clever. The agenda to demolish a mosque and build a temple, and thereby using violence to effectuate one’s agenda  is far easier to critique than a supposedly pacifist proposal to build a museum. While opposition political parties have lambasted it as an election gimmick, they have not per se dismissed the idea of a Ramayana museum. 

Based on the positions opposition parties have taken in the past, such a statement is also unlikely to be made. The BJP knows and exploits the political ambivalence of other opposition parties to Hindu nationalist demands. In doing so, all opposition parties are shown up to be “soft” Hindutva champions, rather than espousing secularism. The BJP on the other hand repeatedly does, and in this case also, be able to signal it’s hyper masculinity to Hindutva bhakts and consolidate it’s core constituencies. 

In the long run, the story of aggressive majoritarian interference may turn out to be less due to the failure to ensure high growth and low corruption, than the failure of the current opposition to create a contemporary aspirational narrative grounded in economic development. 

http://google.com/newsstand/s/CBIwzqmXgTA

When the political establishment deserts you

15 Oct

http://www.rollingstone.com/politics/features/the-fury-and-failure-of-donald-trump-w444943
This is a brilliant article in Rolling Stone magazine about the anger of the Republican party’s base at the realisation that their leaders have essentially sold them down the river through the decades. It’s also a great reminder of how populations react to the obnoxious and snobbish behaviour of elites, and how they respond – with Trump. 
In a very different sense, the snobbish behaviour of the UPA, and the perception of their nepotism laid the groundwork for the Modi wave, and the consequent emergence of illiberalism as a legitimate thread of democratic discourse. 

What does it mean to vote against misogynists? 

15 Oct

USA First Lady Michelle Obama absolutely excoriated Donald Trump in a speech the day before. Must watch for everyone. 

Freedom of movement and residence in India

24 Dec

I have a chapter in an upcoming publication — “The Oxford Handbook of the Indian Constitution” on the freedom of movement and residence in India.

 

 

The war on the war on higher education

15 Jul

Which government is worse for higher education in India? That has become an interesting point of debate on the Indian Express in the last few days. On July 8, an interview of Amartya Sen appeared in the paper (Link), where he explained the circumstances behind his recusal from being considered for the position of Chancellor of Nalanda University in February this year.  According to him, the ruling dispensation was completely convinced about his non-acceptability for the post. He went public with his recusal as he wanted to prevent a right-wing ideologue from being appointed as Chancellor (we have seen many instances of this occurring over the past year).

On July 12, Tavleen Singh responded with a typically angry column basically arguing that Dr. Sen’s opinions were extremely biased, and accused him of doing nothing while he was in a position of much greater influence during the UPA governments. Dr. Pratap Bhanu Mehta weighed in with a more nuanced response to Dr. Sen. His two primary arguments were:

  1. What happened to Dr. Sen with respect to Nalanda has been a recurring theme of higher education in India. Administrators, professors and chancellors at various levels have been continually harassed and their work interfered with by unfriendly dispensations. He states: “This history is important not to make the obvious point about hypocrisy. It is to make the analytical point that the fraught relationship between academia and politics far transcends particular governments. This is not a troubling truth that we can understand through easy recourse to one particular ideology or government. The ideological narrative of interference, rather than the larger political one, allows us to don the garb of victims fighting for a good cause much more easily, and academics love that self-image. It also prevents us from getting greater vertigo as we should if we were to really look over the abyss. But, more practically, it prevents us from asking why it is so difficult to build meaningful alliances for higher education.”
  2. Dr. Mehta argues that the complaints of many current ousted administrators, vice chancellors should be seen as the complaints of a privileged elite who benefited from earlier dispensations. Additionally, during their tenures in academic positions, they failed to build coalitions that would insulate higher education from political interference.

Today, Dr. Sen responds to Tavleen Singh and Dr. Mehta in another piece in the Express. His piece is essentially a defence of his earlier position.

Both Dr. Mehta and Dr. Sen however seem to agree on a few basic points:

1. We as a society have failed to insulate higher educational institutions from political interference.

2. This lack of insulation is a major cause of our rotting higher educational system.

3. While we produce many brilliant students in India, the average student is just not good enough.

Capital controls against FDI in aviation: An example of bad governance in India

13 Jul

I am cross-posting an old post I had co-written on Prof. Ajay Shah’s blog (LINK). The post highlights some of the persistent failures in Indian administration to follow basic rule of law principles.

Excerpts:

“When the coercive power of the State is wielded by the executive, this should be accompanied by appropriate checks and balances. Good practice in regulatory governance requires that when regulators wish to make changes to regulations, and thus affect the rights of private parties, the regulators must furnish reasons for making those changes. This increases transparency, predictability, and accountability.”

“This multiplicity of regulations also leads to uncertainty of regulatory objectives. Investors have no idea of what criteria is used to assess their investments, and grant them business permissions. It is important to recognize that the justifications used to impose regulatory restrictions for relying on the distinctions between private and public, or domestic and foreign entities, is that these distinctions are reasonable proxies for the other characteristics (national security, systemic risk) that are a valid basis for differential treatment. As in so many areas of regulation, the misapplication of easy proxies for characteristics that are difficult to assess becomes a glaring reminder of regulatory uncertainty. It is important that regulatory objectives be identified clearly in relevant statues and regulations.”

Sharing post on how the Indian Constitution and PSUs conflict

16 Mar

I have a post on Prof. Ajay Shah’s blog discussing how the constitution prevents PSUs from taking pure commercial decisions from their very inception: Click Here.

Treasure Hunting

22 Nov

I have a recent piece in the Indian Express on the misplaced prioritisation on bringing back black money. The op-ed can be found here.  The piece is reproduced below.

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Suppose you are the government of a country badly in need of gold, but with only Rs 100 with which to get some.

You have two options on how to spend the money you have at your disposal for this purpose: Option one, try and tap the vast and readily available gold deposits in your country or option two, send your generals out to wage war against a neighbouring country rumoured to have large quantities of gold in circulation already. The first option would require the government to build durable capacity to extract the gold. It would require skill-building and long-term investments with the expectation of long-term gains. In short, there would be few short-term political gains.

The second would require sending some of your most able generals out to war. You know the war is going to be long and costly. You are unsure of how much gold you will get even after you win the war, but rumours suggest a possibility of acquiring vast quantities that would instantly make your country rich. Also, war-mongering has its benefits: It riles up people and unites them behind a common enemy. A chance of winning the war would ensure immediate and long-term political success. And you would not need to do the hard work of building state capacity at home. It sounds like a better bet, except that the probability of a win is unknown.

In the choice between spending Rs 100 on either building a more capable and effective tax administration or waging war against black money, we seem to have opted almost exclusively for option two. In doing so, we are sacrificing the historic need and opportunity to reform tax administration within India. Consider the facts: We rank 158th globally with regard to ease of paying taxes. Our tax-GDP ratio is hovering around 5.5 per cent, among the lowest in the world, and has not kept pace with recent growth rates. This points to a lack of investment in state capacity commensurate with a rapidly growing and changing economy. Less than 5 per cent of our population pays progressive income tax, while everyone pays the more inegalitarian indirect taxes every time they consume. This also points to low state capacity, especially since indirect taxes are relatively easier to collect. Consequently, much of our population does not feel the direct burden of taxation. In the long term, this dilutes the level of accountability demanded from the state. The power to demand greater oversight of government expenditure is critical in any democracy.

The world over, developed democracies keep making continuous but major reforms to tax administration. Countries such as the UK, US, Germany, Australia and Sweden have made important changes to their tax administration systems in the areas of taxpayer registration, processing customer information, information collection about taxable transactions, and investment in research. In India, the Tax Administration Reform Commission has already made a number of important recommendations to systematically reform the tax administrative machinery in line with global best practices. Among other suggestions, it recommends the establishment of an independent evaluation office to continuously review tax administration and suggest areas of reform. The TARC has put forward a review of global best practices in each area of tax administration which, if implemented, would substantially improve the collection and administration of taxes.

The implementation of these and other related reforms are urgently required, and they are a long-term investment for the benefit of the country. While it is important to catch tax evaders who have stashed money abroad, it is perhaps more important to collect taxes from somewhat more than 5 per cent of the resident population. A country with low state capacity such as ours cannot afford to focus equally on both goals. A prioritisation has to be made and, so far, in public discourse, we seem to have opted for an option that holds the illusory promise of windfall gain rather than building durable state institutions.

The writer is with NIPFP, Delhi, and ‘The Indian Express

My paper on parliamentary oversight in India

9 Aug

My paper proposing a framework for Parliamentary Oversight in India has been published in the NUJS Law Review (link). A brief description of the paper: 

The need for a strong monitoring mechanism of the Executive in India has been made clearer by recent allegations of corruption against high-ranking officials of the central government. The Indian Parliament is the ideal institution to perform such a monitoring function through oversight of the central executive. The Executive in India is directly accountable to the Parliament. Making oversight by Parliament stronger and more effective would therefore increase the accountability of the Executive. Additionally, an increased oversight role would allow for greater policy inputs from Parliament to the Executive. It would also increase the general level of expertise within Parliament by making parliamentarians more technocratic and giving them greater avenues for specialization in different aspects of policymaking. This has held true in varying degrees in different countries as examined in this paper. Enacting a law that formalizes mechanisms of oversight within Parliament, especially within the committee system, can create such a framework in India. The central focus of a strong oversight framework is the system of parliamentary committees. Reinvigorating existing committees by giving them greater autonomy, clearer powers and research support are central tenets of the proposals made in this paper. Along with restructuring parliamentary committees, the incentive structure for Indian parliamentarians to conduct oversight is also examined, and proposals are suggested to ensure they perform their oversight function effectively. Such a law should reshape the way Parliamentary business is conducted with a view to holding government accountable, while at the same time allowing the central executive to function independently, and with greater efficiency.”

Post on revising the regulatory framework for FDI and capital controls

21 Apr

I have a co-authored post on the reforming the FDI regulatory framework in India on Ajay Shah’s blog here. The post was published on April 21, 2014, and has been co-authored by me, Ajay Shah, and Arjun Rajagopal. The post is being reproduced below. 

 

Capital controls against FDI in aviation: An example of bad governance in India

by Anirudh Burman, Ajay Shah and Arjun Rajagopal.

FDI in aviation was liberalised by the Reserve Bank of India on September 21, 2012 through a change in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (link). Following that change, private players began putting together a number of complex transactions between Indian and foreign companies such as Jet-Etihad, AirAsia-Tata, and Tata-Singapore Airlines.

On November 20, 2013, the Directorate General of Civil Aviation (DGCA) revised its `Civil Aviation Requirements’ or “CAR” (CAR 4.1.5 to 4.1.16) to state that a domestic airline company cannot enter into an agreement with a foreign investing entity (including foreign airlines) that may give such foreign entity a right to control the management of the domestic operator ( link). This change in regulations has major consequences for some of the transactions which are in progress.
There are two important deficiencies in this action by DGCA:

  1. The CAR makes repeated mention of the requirement of control, without clarifying what the term `control’ means. This creates legal risk for transacting parties.
  2. No rationale has been offered to justify the use of the coercive power of the State via the CAR; no estimates of the costs or benefits of this regulatory action have been provided.

What does `control’ mean?

Rule 4.1.8 of the CAR (link) states:

A Scheduled Air Transport Service/Domestic Scheduled Passenger Airline shall not enter into an agreement with a foreign investing institution or a foreign airline, which may give such foreign investing institution or foreign airlines or others on behalf of them, the right to control the management of the domestic operator.

However, the `right to control the management’ has not been defined. This lack of clarity is compounded by two other regulatory requirements: (a) the directors appointed by the foreign entity cannot exceed more than one-third of the total (CAR 4.1.7), and (b) the substantial ownership and effective control of a domestic operator has to be vested in Indian nationals (CAR 3.1).

The new requirements must mean that `the right to control the management’ involves a form of control over and above these two earlier requirements, but no definition of that form of control is offered. Such lack of precision in drafting of laws results in increased legal risk and should be avoided.

Lack of transparency

When the coercive power of the State is wielded by the executive, this should be accompanied by appropriate checks and balances. Good practice in regulatory governance requires that when regulators wish to make changes to regulations, and thus affect the rights of private parties, the regulators must furnish reasons for making those changes. This increases transparency, predictability, and accountability.

In the case of investments, an investor who commits resources would want an element of control in order to ensure his money is not stolen or wasted. A substantial investment in a company is thus often accompanied by rights regarding management and control of the company. If a regulatory requirement interferes with these rights of investors, the onus is on the regulator to explain why. The changes to the CAR affect the rights of investors and potential investors in the aviation industry, but DGCA has not furnished any reasons for its revisions.

Regulatory actions must not be arbitrary acts of God. They must be steeped in the rule of law. The Draft Indian Financial Code, when enacted, will ensure financial sector regulators make qualitatively better regulations by blocking these kinds of mistakes. All draft regulations will have to be accompanied by reasons for the proposed regulations, as well as a cost-benefit analysis of the proposed regulations. These will be made available for public comment, before the final regulations are adopted. This regulation-making process will result in clearer and better regulations, and will enhance the legitimacy of the regulations and of regulators. The adoption of a similar process by DGCA would have led to a better outcome.

Barriers to international economic engagement: A strategic view

Consider trade barriers. The Indian State has the power to introduce customs duties. A number of government bodies undoubtedly have a major stake in the design of customs duties, and may even have critical expertise in the matter. Nonetheless, the power to introduce and modify customs duties is vested in a single authority — the Ministry of Finance. The Ministry of Textiles, for example, has no power to change the customs duty on imported cloth. This is a healthy arrangement: The Ministry of Finance is responsible for maintaining a unified strategic outlook on the question of trade barriers. The Ministry of Textiles can engage with the Ministry of Finance and suggest changes in tariffs, but responsibility for formulating and promulgating a coherent policy ultimately rests exclusively with Ministry of Finance.

This same strategy is required in the field of capital controls. If multiple regulators or government departments set about writing capital controls, we will have a balkanised mess.

Indeed, the current capital controls based framework is just such a balkanised mess. In the absence of a single governing law for foreign investment, a number of agencies have prescribed foreign investor regulations. The types of capital control restrictions and their rationale can be outlined as:

  1. Entry restrictions by financial regulators such as RBI and Ministry of Finance, usually to promote monetary policy and financial stability (under the Foreign Exchange Management Act, but not restricted to it);
  2. Entry restrictions imposed by DIPP and Ministry of Finance on grounds of national security (may include consideration of factors listed under FEMA as well); and
  3. Regulatory restrictions (including on control and ownership) imposed by sectoral regulators.

This multiplicity of regulations also leads to uncertainty of regulatory objectives. Investors have no idea of what criteria is used to assess their investments, and grant them business permissions. It is important to recognize that the justifications used to impose regulatory restrictions for relying on the distinctions between private and public, or domestic and foreign entities, is that these distinctions are reasonable proxies for the other characteristics (national security, systemic risk) that are a valid basis for differential treatment. As in so many areas of regulation, the misapplication of easy proxies for characteristics that are difficult to assess becomes a glaring reminder of regulatory uncertainty. It is important that regulatory objectives be identified clearly in relevant statues and regulations.

In addition to the legal and regulatory uncertainty created by such a multiplicity of regulators and regulations, the regulations themselves may violate India’s obligations under various multilateral and bilateral investment treaties: Many, if not, most such agreements provide for national treatment of investment once it has been allowed to enter the domestic market. Regulators should not be allowed to impose regulatory restrictions after foreign investment has already entered the domestic market. Under this principle of competitive neutrality, there should be no difference in the conditions imposed on the State Bank of India and those imposed on Etihad, when they invest in Jet Airways.

This requires more than administrative changes. A reform of the legalframework is essential. For example, the restrictions in the CAR appear to be grounded in the expansive powers granted to DGCA under the Aircraft Act, 1934. Section 5 of the Act (link) states:

Power of Central Government to make rules. – (1) Subject to the provisions of section 14, the Central Government may, by notification in the Official Gazette, make rules regulating the manufacture, possession, use, operation, sale, import or export of any aircraft or class of aircraft and for securing the safety of aircraft operation.

Those same powers could ground preferential treatment in other areas of regulation. To the extent that other regulatory bodies with responsibilities for other sectors have similar powers, those sectors too are vulnerable to violations of the principle of competitive neutrality.

The report of the FSLRC proposes a cleaner, clearer regulatory framework for foreign investment, one which is consistent with these obligations. Section 2.5 of the report states:

The Commission envisages a regulatory framework where governance standards for regulated entities will not depend on the form of organisation of the financial firm or its ownership structure. This will yield ‘competitive neutrality’. In this framework, the regulatory treatment of companies, co-operatives and partnerships; public and private financial firms; anddomestic and foreign firms, will be identical.

The draft Indian Financial Code, which encodes the principles articulated in the report, explicitly requires all regulators to maintain competitive neutrality while framing regulations. Section 84 (Principles of consumer protection) and section 141 (Principles of prudential regulation) contain the following identical language:

[C]ompetition in the markets for financial products and financial services is desirable in the interests of consumers and therefore… there should be competitive neutrality in the treatment of financial service providers;

This will ensure that sectoral regulators in the financial sector will not be able to discriminate against foreign and domestic firms/investment.

Pending the introduction of the Code, it would be helpful to incorporate its underlying principles into the existing regulatory framework. For example, the BJP has suggested that they will block FDI in retail but they will remove all capital controls against FDI in other sectors. Any government wishing to carry out such a change would need all capital controls be defined at only one place, where a single policy decision is taken. After this, it should not be possible for any other department of government or a regulatory agency to introduce capital controls.

The required single-window system should have the following characteristics:

  1. A comprehensive definition of foreign investment;
  2. A rule-of-law based mechanism for the government to allow/prohibit entry of foreign investment in specific sectors;
  3. A single regulatory barrier for foreign investment before it can enter the domestic market. Currently FIPB is an example of such a barrier;
  4. Clear documentation of approval of foreign investment that must be binding on all government authorities;
  5. Clear enumeration of reasons for which foreign investment can be restricted, and who can impose these restrictions (without any catch-all provisions like “for any other reason”);
  6. A positive obligation on the government to ensure competitive neutrality, OR a restriction preventing the government from discriminating against foreign investment once the investment has been allowed to enter India; and
  7. A review mechanism where foreign investors whose investment has either (a) been rejected, or (b) been subjected to discriminatory treatment compared to a domestic investor, can seek redressal.

Conclusion

There is great outrage in India today, against a capricious State that is a major source of risk for firms. These failures on capital controls are one important component of that problem. It is the right of politicians to interfere with international economic integration – e.g. to block FDI in retail or not or to have tariffs on import of apples or not. But there should be a single-barrier where this political decision is made.

Putting Carts Before Horses. And How?

9 Apr

This post was first published by Humorlessindianlawyer.blogspot.in on April 8, 2014.

Imagine,

living in India with a Parliament that makes laws, an executive that implements these laws and a court system that interprets these laws. Now, imagine Parliament making the following law:

Right to regulate all Economic Activities Completely Act, 2014

Section 1. This Act applies to all of India. Except J&K, because we don’t feel like it.

Section 2. The central government will have the power to ban any economic activity if: (a) it is useful, (b) people can make money from it, (c) it increases the work of government officers, or (d) the concerned officer is in a bad mood that morning.

Section 3. Yes, we really mean business. This time.

Section 4. Notwithstanding thereto anything therefore whereas provided that “economic activity” includes sand mining, coal mining, writing books or, buying, selling, making, eating, drinking, consuming, excreting, advertising any product or service, but does not include the buying or selling of votes.

Section 5. The central government can make rules for the purpose of implementing this Act.

Section 6. This Act will become applicable on the date the central government notifies it in our super cool official gazette. The central government can selectively notify some sections of this Act on days it rains.

Continue imagining,

some super-zealous government officer notifies Section 5 of the Act, but forgets to notify any other section. So out of the entire Act, only Section 5 is in force and applicable law. Thank god, you may say. But the central government goes ahead and starts making rules banning sand mining.

But how? Sections 2 and 4, the two most bad-ass sections have not even been notified yet! People challenge this stupid Act and the rule made under it in the courts.

Dreams get real

In 1988, the Indian Supreme Court made this nightmarish dystopia a reality. In Ajay Canu vs. Union of India the Supreme Court was hearing an appeal from the High Court of Andhra Pradesh. The petitioner had challenged a rule by the state of Andhra Pradesh that required all persons driving motor cycles and scooters to wear helmets.

One of the issues the petitioner raised was that this rule was made under Section 85-A of the Motor Vehicles Act that had not yet been enforced (the other issue was that the Act violated the freedom of movement under the Constitution). Without the section in the parent Act coming into force, no rule, surely could be made under that section? The court swatted away this contention in a majestic display of its wisdom.

The Court pointed to Section 91 of the Motor Vehicles Act. Section 91 gives the government the power to make rules for implementing the Motor Vehicles Act (Importantly, while Section 85-A had not been enforced, Section 91 had been). The Court said it would proceed on the assumption that Section 85-A had not been enforced. However, even if it were not enforced, Section 91 gives the power to the government to make the rules requiring drivers of motorcycles to wear helmets!

Lets re-state this: The Section that gives the power to require drivers of motor cycles to wear helmets has not been enforced. The Section that gives the government the power to make rules for implementing this section is in force. Without the specific power, the rule-making power is useless, one would think. Section 91 specifically states “The … government may make rules for the purpose of carrying into effect the provisions of this chapter…“. And yet, the Supreme Court says it is ok to make rules enforcing a Section that is not even applicable law yet!.

Even worse, this case concerned a challenge to the fundamental right to movement. The Supreme Court held that the rules made by the Andhra Pradesh government did not violate this fundamental right. The net effect of this decision is that the government can impose restrictions on fundamental rights (including, on the freedom to carry on trade and commerce, say, by banning sand mining) by passing a law, and notifying only one section that states that the government can make rules to implement this Act!!

This of course, works brilliantly if you are the government. Suppose the law that is used to do all this provides a right to challenge the government order. Simple. Don’t notify the useless giving-losers-a-chance-to-whine section, and you are good to go!

Constituency-wise Manifestoes, their regulation and consequences

12 Mar

1 Introduction

Today’s Mint carries an article on how political parties have increasingly moved to a system of “localised” manifestoes for the 2014 general election. This is a significant trend that began with Aam Aadmi Party’s Delhi election campaign where it released local manifestoes for each assembly constituency (link). The BJP followed suit in Delhi, and according to news reports, is planning to do the same for the national elections (link). The Congress under Rahul Gandhi is sticking to one manifesto, but its leaders are making the right noises about making manifesto preparation a participatory process.

At the same time, the Election Commission of India has recently started regulating election manifestoes under its Model Code of Conduct pursuant to a Supreme Court judgement. It has stated that election manifestoes should explain the “rationale” for its proposals and how these proposals will be funded. Both these developments, (a) the localization of manifestoes, and (b) the regulation of manifestoes are significant markers for electoral democracy in India.

2 Local Manifestoes

Election manifestoes represent a charter of goals that political parties will strive to achieve if voted into power. The adoption of a system of local manifestoes is both exciting as a tool of political participation, and worrying if one pauses to think of how the aggregation of local manifestoes will work to inform a national government.

On the one hand, this localization process is heartening. Indian political parties seem to be involving the electorate directly in the preparation of manifestoes, and paying greater attention to their voices. This is a marked departure from a process where, as Mint states, “a group of leaders would discuss and determine the content of the manifesto.” AAP has clearly brought in an innovative idea for running political campaigns, and it is being tested by both BJP and the Congress. It makes manifestoes more relevant, and increases (to at least some extent), the level of accountability of elected leaders as voters may have greater recollection of a local manifesto than a national one. If developed properly, this system of local manifestoes could also help make elections more issue-based, albeit at a level where local issues are more relevant. It could also improve the transmission of political messages from voters to politicians by giving the latter a clear charter to try and implement, rather than be a passive responder to powerful local interest groups.

However, while democracy is about representation, but it is also about leadership. The benefit of a centralized process of making a manifesto is that a political party takes an a priori call on what it stands for, and wishes to achieve. This manifesto can then be tempered once voters respond to the manifesto during the campaign. However, here the process of political communication emphasizes leadership and vision. It allows political parties to communicate what they stand for, rather than just try and respond to every constituency’s preference. Incorporating a process where manifesto preparation is completely decentralized creates a risk of parties losing sight of any non-negotiable principles they may stand for.

Obviously, both these arguments assume that it political parties will follow only one of these two approaches, while most political campaigns are likely a blend of both central decision-making and feedback from local constituencies. And given the inordinate amount of power leaders of political parties enjoy, a decentralized process may be the best thing to have occurred in electoral democracy recently. “Garibi hatao” was enormously successful for Indira Gandhi, but it is debatable whether she would have come up with it if the commnication of voter preferences were better. Ditto for NDA’s unsuccessful “India shining” campaign.

Lastly, this argument pre-supposes that political parties and voters take manifestoes seriously! It is in this context that the recent judgement of the Supreme Court (linked above), and the consequent actions of the Election Commission are so significant.

3 Regulation of election manifestoes

The Election Commission has brought election manifestoes under the Model Code of Conduct. In para 3 of “VIII Guidelines on Election Manifestos” of the MCC, the EC states:

(i) The election manifesto shall not contain anything repugnant to the ideals and principles enshrined in the Constitution and further that it shall be consistent with the letter and spirit of other provisions of Model Code of Conduct. (ii) The Directive Principles of State Policy enshrined in the Constitution enjoin upon the State to frame various welfare measures for the citizens and therefore there can be no objection to the promise of such welfare measures in election manifestos. However, political parties should avoid making those promises which are likely to vitiate the purity of the election process or exert undue influence on the voters in exercising their franchise. (iii) In the interest of transparency, level playing field and credibility of promises, it is expected that manifestos also reflect the rationale for the promises and broadly indicate the ways and means to meet the financial requirements for it. Trust of voters should be sought only on those promises which are possible to be fulfilled.

Para (iii) is extremely significant. It requires political parties, for the first time, to (a) explain the reason why the political party is making a particular promise, and (b) explain what resources, including finances it will utilise to fulfill these promises. This is extremely important for the following reasons:

  1. Political parties will have to explain why they want to do something. Ensuring they give proper reasons for wanting to do something will make it more difficult to throw in mindless freebies without any justification. Also, it will reduce room for ideological inconsistencies. Since they have to provide rationales for every promise, it will lead to greater scrutiny of the political party’s overall philosophy, and therefore require parties to think harder about what to put in the manifesto. Lastly, it will reduce incentives to throw in a laundry list of promises without any intention of fulfilling them. Manifestoes have to be readable documents and they have to help the political campaign project an easily communicable message. To ensure this is maintained, the process of picking what to promise will become more selective once the reasons for the promises also have to be included.
  2. Political parties will have to explain what financial resources will be used to achieve its promises. Even if at present they have to only “broadly indicate” how they wil do so, it is a milestone in nudging political parties towards being fiscally responsible. If a political party wants to spend 25% of the country’s budget on defence, it will have to show how it intends to also deliver on its promise of giving everyone free hospitals, food, television sets, electricity, water and the like at the same time. Even if the average voter is not concerned with these issues to start off, it will lead to greater expert and media scrutiny of election promises. We can at least begin to aspire for substantive debates on poll-promises rather than a game of upmanship based on who can promise how much.

 

Foreign direct investment in railways: Does national security matter?

9 Feb

This post has been written by Mr. Pratik Datta.

Background

Present Indian laws ’prohibit’ foreign direct investment (FDI) in railways (other than mass rapid transport system). Of late there has been growing expectation that the Indian Government might allow 100% FDI in construction and maintenance of railway projects (but not in operations). Suddenly the optimism seems to have yielded to apprehensions of ’national security’ concerns (link). These concerns reportedly stem out of potential Chinese investment in Indian railways. India and China have long standing border disputes. The deep penetration of the Indian railways into some remote border areas seem to be bothering the Government. But is this apprehension justified? Do other countries restrict foreign investment based on ’national security’ concerns? Is there no other option but to prohibit foreign investment in railways? These are some of the questions that I will try to answer in this post.

Do other jurisdictions restrict foreign investment on grounds of “national security”?

Yes.

Let’s take the example of US. Since World War II, US has traditionally been an ardent advocate of reduced restrictions on foreign investments. However, at different points of time, specific concerns over national security have shaped US policies on foreign investment. For instance, in 1970s, the US Congress had growing concerns about the increasing foreign investment into US from OPEC countries. This led to the establishment of the Committee on Foreign Investment in the US (CFIUS) in 1975 to oversee the national security implications of foreign investment. In 1988, amidst concerns over acquisition of some US companies by Japanese firms, the Congress approved the Exon-Florio provision that granted the President the power to block cross-border mergers with, or acquisition and takeovers of, certain US companies that might threaten national security.

Subsequently, the 9/11 attacks led to the passage of the Patriot Act, 2001 which declared certain sectors as ’critical infrastructure’ (including transportation) necessary for ’national defense, continuity of government, economic prosperity, and quality of life in the United States ’. The following year, the power to identify ’critical infrastructures’ was transferred to the Department of Homeland Security under the Homeland Security Act, 2002. In 2006, the proposed purchase of the US port operations of British-owned Peninsular and Oriental Steam Navigation Company by Dubai Port World fuelled much discontent among US policymakers. This culminated in the enactment of the Foreign Investment and National Security Act, 2007 that changed the way foreign direct investments are reviewed. First, it included ’critical infrastructures’ and ’homeland security’ as areas of concern comparable with ’national security’ under Exon-Florio provision. Second, it requires CFIUS to investigate all foreign investments involving foreign entities owned or controlled by a foreign government regardless of the nature of business. Therefore, it can safely be concluded that ’national security’ concerns may restrict the free flow of foreign investment into US.

Is US an exception?

No.

An OECD study across 39 jurisdictions found that transportation is the most targeted sector all the jurisdictions have discriminatory foreign investment policy in this sector. The discrimination usually takes three forms: blanket restrictions, sector-specific licensing provisions or contracting, and trans-sectoral measures. The study however concludes that discriminatory investment rules serve as a policy of last resort if all other mechanisms fail, investment policy can be used to prevent investments by foreign entities that may pose risks.

Can it be argued that there is a legitimate national security reason to prevent FDI in Indian railways?

No.

Railways and airways are both modes of transportation. Yet under the present Indian laws, FDI in railways is prohibited while it is allowed in ’air transport service’. In ’scheduled air transport service’ 49% FDI is allowed under automatic route and in ’non-scheduled air transport service’ 74% FDI is allowed – 49% under automatic route and beyond it through approval. Moreover, in ’helicopter services/seaplane services requiring DGCA approval’, 100% FDI is allowed under automatic route. If FDI is not prohibited for air transport on grounds of ’national security’, it is difficult to see why railways should be treated differently.

The prohibition of FDI in railways can be traced back to the Industrial Policy Resolution (IPR), 1948. Railways along with atomic energy, arms and ammunitions were reserved only for state monopolies. The position was reiterated in Schedule A of IPR 1956, which expanded the list of industries (to include air transport also) the ’future development of which would be the exclusive responsibility of the state’. The reason for including ’public utilities services’ within Schedule A was for ’planned and rapid development’ and to provide ’investment on a scale which only the State’ could provide. Evidently, national security never motivated the policy makers to include railways as a state monopoly in the first place. So, it is hard to justify the current blanket ’prohibition’ of FDI in railways on grounds of ’national security’.

If FDI in Indian railways is allowed, would it compromise ’national security’ concerns?

No.

Under the present regime, FDI can come in automatically (automatic route) or through Government approval (approval route). If FDI in railways is allowed under approval route, ’national security’ concerns can be looked into by Foreign Investment Promotion Board (FIPB). If it thinks the concerns are valid, it can reject the FDI proposal. If there is no such valid concern, FDI will be allowed. Subsequent to the FIPB approval, if any genuine ’national security’ concern arises, the foreign investment itself will not be protected under bilateral investment treaties (BITs). For example, Art. 14 of the India-China BIT provides for the ’exception’ clause which excludes from the scope of the treaty any action under domestic laws for protection of ’essential security interests’ by a Contracting Party. The ICSID held in CMS Gas Transmission Company v. Argentine Republic (link) (in paragraph 360) that ’essential security interests’ include ’national security’. Therefore, India can take appropriate actions under domestic law (even expropriate the foreign investment) if there are valid ’national security’ concerns.

To conclude, national security is certainly a crucial issue for foreign investment into any country including India. However, apprehension in itself should not be a ground to prohibit foreign investment. The current legal regime gives enough room to India to address these concerns within the rule of law framework. Imposing a blanket prohibition on foreign investment in Indian railways because of vague national security concerns is neither necessary nor justified.

AAP Governance:The dangerous and regressive fight over Electricity pricing

6 Feb

Introduction

The Aam Aadmi Party led Delhi Government has (link) slashed power tariffs in Delhi, and is in the midst of an ongoing tussle (link) with Reliance owned discom BSES over the supply of electricity in certain parts of Delhi. The AAP, even before taking the reins of the Delhi Government had long accused the Delhi discoms of overcharging consumers, and had demanded an audit into their activities, something they have now initiated (link).

Meanwhile, Delhi’s electricity regulator, the Delhi Electricity Regulatory Commission (DERC) has raised tariffs (link), and also stated that the Delhi Government cannot “cannot interfere in fixing tariff” (link).

What is going on here? On the one hand is the claim by the AAP Government that discoms are over-charging consumers. They seek to resolve this issue by (a) asking discoms to reduce tariffs by 50 percent, and (b) asking the CAG to audit the discoms to see whether they are overcharging. Added to this mix is the DERC which states that the Delhi Government has no power to reduce tariffs. It can only subsidize consumers if it wants. There is a complex legal and regulatory framework with a complex history that needs to be understood here.

 

Electricity regulation in the past

“Electricity” is an entry in List III (Concurrent List) of the Seventh Schedule of the Indian Constitution. This means that electricity can be regulated by both the states and the Central Government. How this works in practice is that purely intra-state generation, production, distribution and consumption of electricity is regulated by the state. Any inter-state aspect of this process is regulated by the Central Government. For example, if a power distribution company in Delhi buys power from a generation company that sells power to 4-5 other states, the terms of the purchase will be regulated by the Central Government.

Until about 10 years ago, electricity distribution in most states was run by state-owned companies (one may remember the infamous DESU in Delhi). Electricity distribution in many states is still run by state-owned companies, but many states have privatised this function to a large extent. More importantly, the process of fixing tariffs for electricity has changed. Why?

State governments have an obvious incentive to keep power prices low. It is a sop given to consumers who then vote for the party in government. How this was being done was broadly the following: the state government would direct the state-owned electricity distribution company to keep electricity prices artificially low. The company would consequently be charging consumers a price lower than the cost of providing them electricity. Since the company never recovered the cost of providing electricity, it basically provided poor quality of electricity. They were essentially loss-making entities, being told by the state government to keep operating as loss-making companies to subsidise consumers. The consequences were poor quality of electricity, and lack of expansion of the electricity supply to all segments of the population.

Most importantly, and conveniently for state governments, the loss from under-charging consumers was borne by the distribution company, and not the state government. State governments, rarely transferred the difference between the cost and the price being charged to the distribution company. So even though discoms became more and more financially unviable, state governments never suffered any financial consequences. They could therefore afford to get away while being fiscally irresponsible, and consumers got low quality electricity at low prices.

Parliament’s Standing Committee on Energy noted in 2002(link):

 

“…tariffs not related to costs of operation, the inefficient operational phases and nearly 50% of the energy consumed not metered which go towards agricultural consumption, hut lighting, T&D losses and pilferage. T&D losses reported by many SEBs are fudged figures. There is free or subsidised power supply and absence of commercial outlook. Political intervention in decision-making by SEBs is rampant. Shortage of power and energy is perennial. There was lack of clear cut policies, organisational purpose, control or responsibility and frequent change of leadership. This is coupled with overstaffing and low productivity and revenue earning distribution function totally neglected.”

 

So what changed?

The condition of discoms throughout the country became acute by the mid-1990s. This extract is from a debate in Parliament in 1998 (link):

 

“…we are today in a critical financial situation in the power sector…I have already explained about the poor and fast deteriorating financial health of the SEBs [State Electricity Boards]. With their finances fast getting eroded, the SEBs will find it difficult to realise any improvement in their operational performance and unless their financial condition improves, they may not be able to realise even the limited capacity addition programme that is now envisaged in the State sector during the next four to five years…In short, if the present scenario of the power sector is allowed to continue, the ability of the SEBs to provide adequate electricity in a reliable manner to the consumers will fast get eroded…”

Starting in 1998, efforts were made to create independent regulators in the electricity sector. These regulators were intended to be independent bodies that would set power prices in a technocratic manner, and be independent of political pressures. This would help discoms charge the cost-price of electricity and make the sector financially viable.

At the same time, a slow process of privatisation of electricity generation and distribution was also initiated. By 2006, the National Electricity Policy of the Central Government explicitly stated that there was a need to attract private investments into the power sector (link)

“…It is therefore essential to attract adequate investments in the power sector by providing appropriate return on investment as budgetary resources of the Central and State Governments are incapable of providing the requisite funds…”

Private investors require certainty and clarity. Unlike discoms owned by states and the Central Government, they are unable to absorb losses on an endless basis. They therefore require a proper, technical mechanism of price fixation, and require that the government will stand by the price fixed by it. This was the reason for setting up independent regulators.

 

Electricity Act and Independent Regulators

In 2003, Parliament passed the Electricity Act (Act) (link). The Act set up independent regulators at the Central (The Central Electricity Regulatory Commission or CERCs) and state levels (SERCs). The Act allows the “Appropriate Commission” to determine tariff according to certain principles laid down in the Act.1 These include keeping in mind that the generation, distribution and supply of electricity is done on “commercial principles”, competition, rewarding efficiency in performance, safeguarding consumer interest, etc. It also stated that tariffs cannot be amended more than once during a year.2 Importantly, the Act states that if the State Government requires a discom to provide a direct subsidy to consumers, the state government will compensate the discom in advance.3

The CERC and SERCs are therefore established as independent bodies, and one of their major functions is to regulate the tariff of electricity. The Act also set up an Appellate Tribunal for Electricity (APTEL). APTEL hears appeals from all orders of the CERC and the SERCs, including orders that fix tariff. State governments and discoms can appeal against orders of the CERC and SERCs if they feel the order is inadequate.

There was thus a very conscious move towards creating a legal framework where electricity prices were to be set by an independent body acting in a technocratic manner. It was hoped that this would lead to private investment and competition, and create a more efficient power sector in India.

State of the power sector today

The provisions of the Electricity Act, 2003 have not been implemented in letter and spirit. Electricity tariffs are not revised and set properly, SERCs are not independent enough, and state governments have done a half-hearted job of privatizing the state-owned discoms. The Chairman, CERC told Parliament’s Standing Committee on Energy in 2012 that the state of State Electricity Boards (SEBs or discoms) is almost as bad as it was in 1998.4 The Tamil Nadu State Electricity Board was reported to be bankrupt (in 2011) (link).

The CERC Chairman told Parliament’s Standing Committee on Energy in 2012 that:

“There are State Commissions which have not rationalised tariff for seven to eight years and there, even if they had taken up any kind of rationalisation exercise, it had been more of a formality. All this has contributed to the Electricity Boards coming back to the situation which they were in 2001 and probably getting worse”5

In response to a question raised in Parliament, the Power Minister stated that the situation of state owned power companies was so bad, that,

“A scheme for Financial restructuring of Discoms has been approved recently (October, 2012) with objective to enable the State Governments and the Discoms to carve out a strategy for the financial turnaround of the distribution companies in the State power sector which will be enabled by the lenders agreeing to restructure/reschedule the existing short-term debt…”6

The answer clearly lies in a continued move towards more technocratic tariff setting, and getting state governments to cede control over state-owned discoms/privatise the electricity sector. It is in this context that we must study the conflicts over the prices of electricity in Delhi.

The Delhi electricity price fight

Delhi privatised its electricity distribution some time in 2002 (link) As per a news report, during the last 10 years, “cost of power has increased 300%, mainly because of higher coal prices and a rise in the financing charges due to higher interest rates, while the rate at which it is sold to retail consumers has increased by only 70% during the period…” (link). Whether the increase in prices is correct needs to be determined through a process of audits and reviews. However, some points need to be made:

 

  1. Electricity prices in Delhi are set by the Delhi Electricity Regulatory Commission (DERC), and not by the Discoms or the State Government. The DERC follows an extremely transparent method of determining tariffs. It involves stakeholders in every stage of this tariff determination process (a recent order can be accessed here).
  2. The Delhi Government is legally not permitted to direct discoms or the DERC to reduce tariffs. The reduction or increase in tariffs is dependent on the process followed by the DERC under the Electricity Act, 2003.
  3. If the Delhi Government thinks the DERC has erred in setting the tariff, it is free to go to the APTEL and challenge DERC’s order.
  4. It is free to order an audit of the discoms, and then take a decision on the functioning of these discoms after the results of the audit are published.
  5. If the Delhi Government still thinks that the electricity prices are too high, it is free to subsidise consumers. There is however, one crucial difference between a subsidy the Delhi Government would give now, as opposed to before discoms in Delhi were privatized. Before privatization, the Delhi Government could have forced state-owned discoms to absorb the losses. Today, the burden of funding this subsidy has to be borne by the Delhi Government. According to news reports, this subsidy will force the government to cough up an additional Rs. 201 crore in the lastquarter of 2013-14… (link). This subsidy is apparently being paid for by scrapping infrastructure projects. Notably, there is no rational basis (yet) for claiming that electricity is over-priced by 50 percent. And as pointed out earlier, even after all the tariff hikes in the recent past, the cost of electricity in Delhi is far higher than what consumers pay for it.

As point 5 shows, once the government bears the burden of the subsidy, taxpayers have a very real stake in the game. We may decide that it is fine for the government to subsidise electricity. But at what cost? We are discussing not just a financial cost, but the cost of trying to bulldoze legal institutions such as the DERC into submission on the basis of a simplistic claim of corruption without any actual evidence (yet) of over-priced electricity. We are also discussing the cost of going back to a regressive era where we consumers received poor quality electricity at low prices because elected governments were playing a cynical game of charging less for less. The current fight over electricity pricing goes to the heart of what kind of institutions we build for the future.

 

————

1. Section 61

2. S. 62

3. S. 65

4. Oral evidence of Chairman, CERC to Standing Committee on Energy in its 30th Report on Functioning of Central Electricity Regulatory Commission (CERC), August 2012.

5. Ibid.

6. Unstarred question no.1635 on Provision of electricity at economical rate, by Shri Wakchaure Bhausaheb Rajaram, answered on 07.03.2013, Lok Sabha.

Interesting reads: Media, merit vs. communism, and elections 2013

10 Dec

Some good stuff to read this week:

Vinod K. Jose in Caravan on the lack of a larger philosophical framework for the Indian media to operate within: “Habits of Mind

Nobel Laureate physicist Walter Kohn remembers one-time partner, Indian physicist Chanchal Kumar Majumdar in “A master and his protege“.

Pratap Bhanu Mehta’s engaging piece on the election verdict in the Delhi, Rajasthan, Madhya Pradesh, Chhattisgarh: “Left Behind

Moiz Tundawala’s incisive piece on the rule of law in India: “ON INDIA’S POSTCOLONIAL ENGAGEMENT WITH THE RULE OF LAW

 

 

 

Bangalore ATM Attack and police abdication

20 Nov

A woman bank manager was brutally attacked yesterday while inside an ATM in Bangalore yesterday. Apart from the gruesome attack on the lady, what has been bizarrely shocking has been the response of the police to the same.

Facts: On Nov. 20, a woman, who is also a bank manager (not clear if she was the manager of the same bank as the ATM), was attacked brutally by a gun-wielding attacker, who hit her on the head with a machete after she resisted his demand to withdraw cash and hand it to him. The lady, Jyothi Uday, was attacked at 7.10 a.m., and lay unconscious for three hours until 2 schoolchildren saw her and raised an alarm. The right side of her body has reportedly been paralyzed due to the attack. Incidentally, the ATM is located in the LIC divisional office building, 50 metres away from a police station. (Read more here and here)

While the police have launched an extensive manhunt for the assailant (the entire incident has been recorded on CCTV), in a bizarre development, the Home Minister for Karnataka, has also done the following:

1. The Karnataka Government has set a 3-day deadline within which all banks have to provide security guards at all ATM kiosks.

2. ATMs that do not have this security may be locked up/shut down.

The specific statement is: “We are aware that Banks are governed by RBI guidelines. But law and order is a state subject and so we have powers to act against them to ensure Tuesday’s incidents do not recur…”

(This report was published here.)

So, if I may re-frame the argument for the Karnataka government, it is essentially saying:

Law and order is a state subject. That is, the state government has the responsibility to ensure law and order for its citizens. This is usually done by ensuring a well functioning police force, which is alert, and has a good response time. In this case, we do not have either. The lady was lying inside an ATM for 3 hours. The shutter of the ATM was down, when it is usually open. And we had to be alerted by schoolchildren. To get over our inability to provide security, we will force banks to hire security guards. We do not care if this increases the cost of running ATMs substantially. We also do not care if many ATMs have to be shut down, depriving people of access to an easy source of quick, and cheap cash dispensers. We may do a really really bad job of ensuring public safety, but by forcing banks to hire security guards, we can easily solve this problem. Not only do we not have to solve the problem to having to think hard and figure out ways to ensure a better police force, we also do not have to worry about boring stuff like financial inclusion, etc. Tomorrow if pedestrians are killed in road accidents, we will similarly ban people from crossing the road, and force them all to buy cars. So what if many people can then not walk on the road.

All hail our fewi-quik governance.

Introducing the Indian Public Administration Lexicon or “iPal”*

31 Oct

iPal is an attempt to make comprehensible certain words that sound familiar, but mean something entirely different when used in Indian governance and politics.

1. Aam Aadmi: Rich people who dress badly.

2. Public interest: a) Interest of Aam aadmi.

b) source of power to override law, constitution, logic, reason, everything.

3. Subsidy: Screw you poor aadmi. Yours sincerely, Aam aadmi.

4. Taxpayer money: Kalpavriksha (mythological, wish-fulfilling divine tree said to fulfill all desires). Also, free lunch.

5. Neo-liberals: Jerks who inconvenience us with facts.

6. Public goods: Stuff the government wants to do with your money. Includes running hotels, making bread etc.

7. Free market fundamentalist: Anyone who wants the government to get out of the business of running hotels or making bread.

8. Pro-Poor: Anti-growth

9. Pro-growth: Crony capitalism

10. Rule of law: Nobody’s business.

11. Sustainable growth: slow growth

12. Due-Process: See, “The Trial” by Kafka.

13. Economic justice/Inclusion: Socialism.

14. Freedom: It’s nice, till you exercise it.

15. Right to free speech: Right to say nice things.

16. Judiciary: Legislation without representation.

17. PIL: Your interest, my litigation.

18. Justice: Often delivered without reference to law.

19. Clearance: Roadblock with a welcome sign.

20. Parliament: World’s most efficient law-making body. Has passed 8 bills in 17 minutes.

21. IAS: Individuals anointed as saviours.

22. Competent authority:  ??         (See definition of ‘due process’)

23. Evidence-based policymaking: “My 20 years of experience says…”

24. Lal Bahadur Shastri Academy for IAS probationers: Hogwarts.

*By Anirudh Burman and Suyash Rai.

What entities are public authorities under the RTI Act?

27 Sep

The text below is from my brief titled “Who is a Public Authority under the Right to Information Act, 2005?” as published on the website of Accountability Initiative, published in September 2013. The brief can be accessed here.

 

The definition of ‘public authorities’ under the Right to Information Act, 2005 (“RTI Act”) has been an extremely contentious issue since the RTI came into force. However, in the wake of an order of the Central Information Commission (“CIC”) declaring political parties as public authorities under the RTI Act1, the issue has taken centre stage in public debates. The Central Government sought to undo the CIC decision by proposing to amend the definition of Public Authorities to exclude political parties. This amendment has now been referred to a Parliamentary standing committee. This development affords an important opportunity to examine the definition of public authorities, and controversies arising from its interpretation. The specific focus of this brief is on a sample of cases that were brought to the High Courts.

The RTI Act empowers citizens with the right to access information under the control of ‘public authorities’. Accordingly, RTI Act creates a legal framework to make good this right by defining public authorities, allowing citizens to ask public authorities for information, and imposing penalties on officials of public authorities for failing to disclose ‘information’ defined in Section 2(f). The RTI Act also mandates that “every public authority shall pro-actively disclose information pertaining to it, and maintain its documents and records to facilitate the right to information under the Act”.
Therefore the question of “who is a public authority?” is critical one because it sets the boundaries of the scope of the RTI Act specifically and the transparency regime in the country, more generally. In the last seven years, a wide variety of entities otherwise considered to be private entities (such as schools, colleges and sports associations) have been declared public authorities, and have had to comply with the requirements of the RTI Act. A perusal of judgments of High Courts and the CIC reveals a diverse and at times, conflicting jurisprudence regarding the ambit of ‘public authorities’ under the RTI Act.

 

To read more, click here.

Can the state handle it?

16 Sep

This post was first published on http://logos.nationalinterest.in on September 15, 2013, and can be accessed here

 

A minimalist theory of state functions explains the main functions of the state as being (a) the function of collecting revenue, (b) the maintenance of law and order, and (c) the protection of a nation’s boundaries. State capacity is a pre-requisite to perform even these essential functions. The roles of states in contemporary times is not limited to these minimal functions. Most states perform these, as well as other roles, sometimes as facilitators, regulators, or direct market participants. In India, there is a broad existing consensus in favour of the state acting in all these capacities. Indeed, there is no clear consensus yet, on whether the state needs to withdraw from certain functions, towards a more liberal construct of the role of a state.

 

In this context, it is essential to connect the legitimacy of the state, to its capacity to deliver. As a social-welfare democracy, our constitutional goals mandate that the state perform roles that very few developed democracies were tasked with at their inception (the eradication of mass poverty, illiteracy and starvation). Therefore, the legitimacy of our state apparatus has never been measured merely against how well it provides the three minimal services of collecting revenue, maintaining law and order, and protecting our borders. These diverse and competing expectations from a fledgeling state apparatus may in fact have compromised its ability to deliver the essential three services in the first place. In short, because we asked our young state to do too much too soon, it may not have been able to deliver basic services expected of every state.

 

Therefore, if the state is to attain legitimacy, it has to perform its functions more efficiently. And since there is an existing consensus on asking it to do a multitude of things, there has to be a comprehensive analysis of the capacity of the state to deliver. In some instances, such as when police-population and judge-population ratios are measured, it is easy to estimate our current numbers, compare it with states who deliver law and order, and justice more efficiently, and estimate how well our current police-population ratio and judge-population ratios measure up against these countries. The police and the judiciary are however relatively homogenous departments that perform a limited number of tasks i.e. the police exists to prevent crimes from occurring, and investigating crimes which have already occurred, and judges exist to interpret the law, examine the facts and deliver justice.

 

But what about the state departments of health? They oversee and regulate private hospitals. They also own and supervise government hospitals. They have to ensure the genuineness of medicines, the operation of emergency health services. They also have to implement  food safety laws and standards. If the central government starts the National Rural Health Mission, they also have to implement the mission. In many cases, the same individuals comprising part of the bureaucracy may be performing these multiple tasks which require very different skills and much more manpower. If this is indeed true (and many commentators feel it is) then contrary to the pop-policy debate on reducing the role of the state, there is an argument for substantial investment in state capacity. In other words, most bureaucracies perform multiple, and heterogenous tasks. However, their internal design, and capacity has not evolved to take on the burden of the ever-expanding regulatory state.

 

One alternative would be to insist on a drastic overhaul of the bureaucracy, as many do. Another would be to insist, or formalize mechanisms for ensuring that any addition to the tasks of a state agency is complemented by an increase in state capacity. The law, rule or regulation that delegates a particular administrative function on a particular agency should do so only if it can justify that the agency is best placed (in terms of skills and resources) to perform this additional task. The latter may in the long run create a virtuous cycle leading to an internalization of the principle of manpower costs before new laws and rules are created.

Fatal attraction: The State’s “public purpose” in Land Acquisition

12 Sep

This post was first published in The Broad Mind, on September 12, 2013. 

 

Both houses of Parliament recently passed The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (“2013 Act”), repealing the century-old Land Acquisition Act, 1894. For years, the new law was touted as the panacea to the evils the old Act perpetuated, not least, the broad discretionary powers to state authorities for acquiring land for a “public purpose”. News reports have pointed to how land is allegedly bought at below market prices (read here and here), and consequently sparks loud protests.

 The new Act seeks to resolve this controversy by providing for higher compensation (up to four times the market value in rural areas), requiring prior consent for land acquisition (80 percent of affected families for land acquired on behalf of private companies and 70 percent for public private partnership projects), providing detailed time lines for each stage of the acquisition process (estimated to take approximately 4 years!), rehabilitation and resettlement of affected families in certain cases, etc. This however does not address the main cause of the controversy: state intervention in land acquisition on behalf of private entities.

The old 1894 Act created an expansive definition of “public purpose” based on the assumption that the state would be the chief architect of industrial development, for which it needed to have the power to acquire land for a multitude of purposes. This included some arguably legitimate purposes such as the provision for town planning, development of land from public funds, and “for carrying out any educational, housing, health or slum clearance scheme sponsored by Government or by any authority established by Government. But it also included other purposes such as (a) on behalf of PSUs, and most importantly, (b) “the provision of land for any other scheme of development sponsored by Government or, with the prior approval of the appropriate Government, by a local authority”.

Many protests (including those mentioned in the news reports linked above) arose primarily because of the heavy-handedness of the state in acquiring land, sometimes on behalf of private companies, at below market prices. The new Act intends to correct this heavy-handedness. It does not however question the basic assumption of the role of the state as an interventionist intermediary in land acquisition. Instead, it tries to improve the existing condition by creating more state agencies and broadening consensus-making processes. It requires a social impact assessment through consultation with local municipalities, gram sabhas and panchayats. It creates an expert group consisting of social scientists, representatives of gram sabhas, panchayats or municipalities, technical experts and experts on rehabilitation to evaluate social impact assessment. It also creates a committee for rehabilitation and resettlement, and land acquisition and relief and rehabilitation and resettlement authorities at the state and central levels.

Whether these institutions will work efficiently is hard to predict, but their establishment is an irrevocable step down the path of establishing the state as an intermediary in all land acquisitions for a public purpose. This brings us to the root of the problem: the definition of “public purpose” in the 2013 Act. The definition of public purpose in the 2013 Act has become, if anything, more expansive and explicit. It covers acquisition for strategic purposes, infrastructure purposes (which includes everything from agro-processing units established by government entities to projects for industrial corridors), and retains most of the clauses from the 1894 Act. Worse, this definition is not exhaustive!

The philosophy behind this 2013 Act is therefore seemingly this: the existing role of the state in land acquisitions is non-negotiable. However, multiple controversies have arisen where compensation paid has allegedly been below market prices, or insufficient (This is due to the fault of state agencies since they assess market prices and give compensation.) To correct this wrong, we need to do two things: (1) create more detailed legal process to ensure clear parameters for fixing compensation, and (2) create monitoring and oversight mechanisms.

The question is this: when did the role of the state become non-negotiable? Consider the original Land Acquisition Bill introduced by the UPA in 2007. The Land Acquisition (Amendment) Bill, 2007 (“2007 Bill”), was passed by the Lok Sabha in 2009, but lapsed when the Lok Sabha dissolved prior to the elections. The 2007 Bill contained a narrow, restrictive definition of “public purpose” based on a different premise of the role of the state in land acquisition. The definition is a complete contrast to the page-long definitions in the 1894 Act and the 2013 Act. It includes:

  1. acquisition for strategic purposes,
  2. infrastructure projects of the government where benefits accrue to the public, and
  3. any other purpose where land has already been purchased to the extent of 70%.

The 2007 Bill, which nearly became law, would therefore have been a complete change to this assumption of state intervention that the 2013 Act is predicated on. Between 2009 and 2013, the philosophy of reform which first motivated proposed changes to land acquisition law were completely replaced by a philosophy of incremental change. In this context, our final legislative product, the 2013 Act that replaces a century-old, much-maligned law, is a comparatively small step to prevent market abuses. It does nothing to address the cause of market failure: the role of the state.

Anirudh Burman is a Takshashila Scholar, a law graduate from Harvard, and consults with the National Institute of Public Finance and Policy and the Center for Policy Research.

The Indian Olympic Committee follows the “law of the land”

5 Sep

According to recent news reports the Indian Olympic Commission will continue to be disbarred from the International Olympic Association, due to its refusal to accept a “contentious” clause that prevents “charge-sheeted officials from taking part in administration or contesting elections.” (read here, and here) The reason is not difficult to fathom: “Its secretary-general Lalit Bhanot faces corruption charges in a 2010 Commonwealth Games-related case. India was banned in December 2012 after Mr Bhanot was elected.”

 

The reason the IOA refuses to accept this clause is apparently because the IOA has to comply with the law of the land:

“We can’t go beyond the law of our land. We will make our constitution according to the law of the land. We have clearly told the two-member IOC delegation that we can’t go beyond the law of the land.” (Sourced from here)

Some questions need to be asked:

a. Does incorporating this clause of the IOC violate Indian laws?

b. What prevents the IOA from incorporating standards HIGHER than what Indian laws provide?

c. Is there any special restriction placed on the IOA by the Indian government which prevents it from incorporating such a provision in its rules and regulations?

 

A short answer to all these questions is as follows: No, Nothing, and No.

 

According to the Constitution of the IOA, it is a private society registered under the Societies Registration Act XXI of 1860. Here are two clauses relevant to the current debate:

“3. To enforce all rules and regulations of the International Olympic Committee and the Indian Olympic Association and not to indulge in or associate with any activity which is in contradiction with the Olympic Charter.
To follow, observe and uphold the primacy and domination of the Olympic Charter in case of any contradiction between it and the rules, bye-laws and the constitution framed by the Indian Olympic Association.”

 

The Rules and Regulations of the IOA also list its voting members. There are no government members or nominees with voting rights. There is therefore no governmental pressure on it to resist the changes the IOC is asking it to make. According to its own rules, one of the functions of the General Assembly of the IOA is to enforce the rules and regulations of the IOC.

The IOA is therefore a private, i.e. non-governmental organisation that is not subject to governmental supervision, beyond the state’s supervisory powers to regulate sports associations in India. It is free agree to or sign any clause/contract/agreement that is not prohibited by law.  In fact, as Clause 3 above states, one of the objects of the IOA is to enforce ALL rules and regulations of the IOC, and to not indulge in any activity which contradicts the Olympic Charter. It is then, quite clearly violating its own objects and its rules by not agreeing to the IOC’s new clause requiring charge-sheeted people be barred from the administration of the IOA.

Furthermore, the defense of acting in compliance with Indian laws can at best be described as disingenuous.  The IOA as a private entity is merely an authorised agent of the IOC, who has recognized the IOA as its exclusive agent within India. The clause requiring that charge-sheeted people not be part of the IOA is a contractual term which the IOA has to agree to, in order to continue to be IOC’s recognized agent in India. No law, rule, regulation, authority, apart from the self-interest of some of its members in India prevents the IOA from agreeing to the IOC condition.

 

The question of course is, what is the cost of this self-interest? According to one news report, this is what Abhinav Bindra had to say about the issue:

“It is humiliating for us. When we are travelling abroad to take part in a tournament and representing the country and people ask what sort of system do you have back in India. It is a joke.” (Sourced from here)

 

What is the appropriate public policy response? There are some who would advocate state control over such sports associations. That however has not always yielded great results. Should this issue be left to the IOA, its constituents and sports persons under the IOA banner, with the hope that once things get even worse, someone within will step up and clean the mess? There are no quick-fix answers, and maybe the shame and embarrassment of not being able to participate in the next Olympics, and collective pain of all the athletes who are unable to participate  will create a virtuous push for reform. The best, short-term fix would of course be for our police and judiciary to wake up and once and for all either convict or acquit the charge-sheeted.

Not so NEET

14 Aug

This is a guest post by Jeet H. Shroff. Jeet has completed his Masters’ in law from Harvard Law. 

The recent decision of the Supreme Court striking down, by a majority of 2:1, the common medical entrance examination conducted by the Medical Council of India (MCI) raises important questions on the now-obvious contradiction between the Court’s stated pro-merit, pro-poor pitch and its steadily growing record for handing down pro-rich, status quoist decisions on critical issues. For long, legal observers in India and around the world have feted the visibly activist tilt of India’s highest court. Whether in matters of environmental law, socio-economic rights or political reforms, Supreme Court decisions have usually preceded and often catalyzed changes in legislative policies. Yet, a growing line of decisions in the past decade or so, have bolstered claims by those who see the Supreme Court as being activist only in speech while being status quoist in practice. Its most recent decision, striking down the single-window National Eligibility Entrance Test (NEET), which would have provided relief to millions of poor and meritorious medical students across the country, calls into serious question its progressive reputation.

The MCI-administered NEET was intended to provide medical students across the country a one-stop shop to appear for medical entrance examinations as well as to serve as a common admission standard to both government and private medical colleges. By striking down the NEET however, the decision restores the older system of separate medical examinations and separate admissions processes for different state and central medical institutions. More egregiously, it maintains the status quo on admissions by private and deemed medical colleges, which may not only conduct their own independent examinations but may also continue to profiteer from the scarcity of quality medical institutions by charging massively inflated capitation fees for admitting less meritorious students. Ruling that the MCI’s mandate to ensure ‘excellence of medical education’ in India extended only to the laying down of standards but not to actually conducting examinations, the majority found the NEET to be beyond the powers of the MCI as well as an unconstitutional interference with the right of private educational institutions to function autonomously. Yet, despite the majority’s strenuous reliance on the statutory text, the decision appears to be a classic case of form over substance. After all, many of the Supreme Court’s most well regarded decisions have been a result of creative statutory interpretations calculated to achieve just results. Given this past record, the majority’s literal and restrictive reading of MCI’s charter is not so much an indication of judicial discipline or helplessness as it is of judicial preference.

Troublingly, the NEET decision is one amongst a growing number of decisions, which point to a dichotomy in judicial speech and action. For instance, despite its pro-environment assertions, the Supreme Court preferred to allow the development of Mumbai’s mill lands as against leaving them as open spaces for the common enjoyment of all. Similarly, despite requiring elected representatives to make asset disclosures, the Supreme Court contested a similar demand in respect of itself and eventually gave in only after concerted political and public pressure. In the realm of socio-economic rights too, while the Supreme Court has been a trail-blazer in declaring the existence of un-enumerated rights to food, housing, employment and education, it has done little to enforce its declarations on a case to case basis. In the context of the NEET, this trend continues. Despite numerous Supreme Court decisions declaring education to be a strictly non-profit activity, the NEET decision fails to check the growing corruption and profiteering that are now commonplace in private and deemed institutions. Even as lakhs of medical students steel themselves for another round of frustrating examinations and admissions, hints in the dissenting opinion of inadequate judicial deliberations and undue haste could provide a narrow ground for a review of the decision. But whether or not the decision is formally reconsidered by the Court itself, its wider ramifications on medical education in India merit a comprehensive legislative response.

RTI Amendment: Legislative supremacy and judicial intervention

13 Aug

Bhargavi wrote a great piece yesterday on the tendency of legislatures to nullify judicial pronouncements by passing laws which overturn judgements/orders. She rightly pointed out this practice as a major issue which needs greater deliberation. There is however, one other issue which needs to be considered while thinking of possible solutions. This is the issue of balancing legislative supremacy with judicial intervention.

 

Legislative supremacy is probably the most important cornerstone of a democracy, and judicial intervention is the most important check on unbridled exercise of such supremacy. Constitutions in different countries balance the two through different mechanisms. Our constitution prohibits unbridled exercise of legislative power on issues affecting fundamental rights, and gives the judiciary the power to check the legislature from doing so. In essence however, the legislatures are democratically elected bodies, while the judiciary is unelected. While the legislature gains its legitimacy from the democratic process, the judiciary gets its legitimacy through the perceived correctness of its judgements. At any given point of time therefore, it is difficult to ascribe greater legitimacy to one institution over another, as there is no formulaic mechanism to judge the popular legitimacy of the judiciary and compare it with that of legislatures.

 

Legislatures retrospectively invalidate many rulings. Bhargavi points out some such laws which have nullified historically and constitutionally significant rulings. Some of these invalidations have apparently been made to protect the powers and privileges of politicians. However, many such laws (including the Vodafone incident, and numerous other retrospective laws on tax cases, especially in Punjab&Haryana) can also be said to reflect democratic preferences. In essence, in all such cases, the legislature seems to be saying that it feels that the judiciary has made an improper call in ruling the way it did. This may be easier to disprove objectively in some cases (where politicians clearly invalidate a correct judicial interpretation) than others (I for example, completely disagree with the assertion that political parties fall within the ambit of the RTI Act, read more here).

The important point is this: We should try and focus on mechanisms to make the legislative process more accountable and responsible. As long as we depend on the judiciary to intervene and correct “wrong” steps taken by legislatures, we are not putting sufficient pressure on the legislature to correct itself. I would argue that in the long run, incentivising legislatures to behave more responsibly is better than forcing them to make laws which make them more accountable. Doing so would in turn make the democratic process more virtuous and participatory. If lawmakers fail to consult citizens before passing laws, there should be sufficient public outrage which forces lawmakers to consult citizens.

 

The forum for reforming the democratic process should be direct engagement with the legislature. Using the judiciary as an instrument to dictate popular public policy goals does nothing to further the cause of popular democracy in the long run. It prevents popular engagement with substantive issues since the judiciary does not need to deliberate with, and convince the masses of the correctness of its decision.

Fighting it out with legislatures and politicians may be a tougher alternative, but it is definitely a more virtuous one.

The narrative of independent regulators

2 Aug

This post first appeared as an article on Bar and Bench on July 31, 2013. The original can be accessed here.

 

Those following important policy developments recently will notice numerous announcements proposing new “independent” regulators. Beginning with SEBI in the early 1990s, and TRAI in the late 90s, a number of independent regulators have been set up. These include the Central and State Electricity Regulatory Commissions (CERC and SERCs respectively), the Competition Commission of India (CCI), the Insurance and Development Regulatory Authority of India (IRDA), the Pension Fund Regulatory and Development Authority (PFRDA), the Airport Economic Regulatory Authority (AERA), the Petroleum and Natural Gas Regulatory Board (PNGRB) and the Tariff Authority for Major Ports (TAMP).

Recently, there have been proposals for a biotechnology regulator, a real estate regulator, acoal regulator, and even a roads regulator. In the financial sector, the report of the Financial Sector Legislative Reforms Commission (FSLRC) recommends an overhaul of the financial sector regulatory architecture by merging some existing regulators, and creating new ones. The most often talked about rationale for the creation of independent regulators is to ensure greater competition in a given sector, and to create a level playing field for different entities competing in that sector. This fairly regulated competitive market, it is argued, will be of greater benefit to consumers than the existing regime.

While this article does not seek to contest this above-mentioned premise of promoting competition, we need to examine whether the laws and processes creating these independent regulators actually create “independent” regulators who also remain accountable to Parliament. Since many of these regulators create appellate tribunals, or provide for appeals to High Courts and the Supreme Court, this article also discusses the implications of this regulatory sprawl on the existing judicial system. Lastly, the rationale for the creation of independent regulators needs to be debated carefully before more and more regulators are established. I argue that the long-term implications for the establishment of such a large number of sectoral regulators are something lawyers, policy experts and administrators need to examine carefully.

Independence and performance

Independence of regulators from the government is desirable to enable them to perform without political interference. This is especially important in India where the state is a major market participant in many economic sectors. However, not all regulators are equally independent, since the laws establishing them do not follow a uniform standard. Additionally, these laws rarely have the right mix of independence and accountability; a lot of these issues arguably stem from poor legislative design.

To be truly independent from the government, not only must the regulator be an independent statutory authority, it must also be financially and administratively independent from the government. The executive cannot be allowed to either interfere, or arm-twist the regulator to do its bidding. More importantly, since the onus of meeting the regulator’s objectives lies with the regulator, the government cannot be allowed to have unbridled discretion in how the regulator hires and manages personnel, and uses its finances.

For example, in 1999, TRAI, after holding extensive consultations issued its first Tariff Order (TO), a landmark for infrastructure regulatory agencies in India as it attempted to set tariffs to reflect costs more closely. After an uproar in Parliament, and opposition from other quarters, the Department of Telecommunications sent TRAI a 3-line note directing it to put its order on new phone rates on hold. TRAI refused. In response,

 

“[T]he government issued two gazetted notifications … The first related to salaries, allowances and conditions of service of TRAI officials. Here, instead of setting rules for the chairman of TRAI, it made different rules depending on if he were a retired judge of the Supreme Court, a retired chief justice of a high court or if he were a serving judge. It also cut down on the allowances for foreign travel [of TRAI], ostensibly in the wake of a recent Comptroller and Auditor General report.”

(Sourced from here)

Laws establishing regulators must therefore, be drafted to protect against such instances. At the same time, there must also be mechanisms to ensure regulators remain accountable to Parliament. The CAG for example, set up an institute in Jaipur to train officers in environmental audits. As a constitutional authority, the CAG is arguably responsible for auditing the government’s expenditure. While environmental audit may be desirable in itself, it is debatable whether such audits come within the CAG’s existing mandate.

The report of the FSLRC recommends physical, legal and administrative separation of the regulator from the government, implying that regulators must have independent infrastructure, personnel. With regard to financial independence, the FSRLC recommends independent sourcing of finances from sources such as fees. With regard to strengthening accountability, it recommends that regulators (a) be given clear, precise regulatory objectives, (b) explain their regulatory actions to the general public, and regulatory changes be made after prior consultation with the public, and (c) report to Parliament on how they fared on pursuing their regulatory objectives, and the outcomes achieved.

Appellate Mechanisms

Independent tribunals, or some other appellate mechanisms are usually created to entertain appeals or disputes from orders of regulators. SEBI has SAT, the CCI has COMPAT, TRAI has TDSAT, the CERC and SERCs have the Appellate Tribunal on Electricity (APTEL), IRDAs appellate forum is SAT, appeals from PNGRB go to APTEL, and so on. While tribunals perform an adjudicatory function, and are thus not as prone to interference from the executive as the regulators, their relationship with the executive also needs to be looked into.

One such example is the use of APTEL’s use of its suo moto powers. In November 2011, APTEL passed an order exercising its suo moto powers, directing all SERCs to revise electricity tariffs regularly. Under the Electricity Act, 2003, all SERCs are mandated to revise electricity tariffs regularly on the basis of documentation provided to them by state electricity utilities. This was however not being done by most SERCs, and electricity utilities continued to suffer losses as tariffs remained low compared to the cost of producing and supplying electricity.

Significantly, APTEL exercised this suo moto power on the basis of a letter from the Ministry of Power complaining that most state distribution utilities had failed to file annual tariff revisions in time, and as a result, tariff revision has not taken place for a number of years in many states. It also stated that SERCs have not revised tariffs suo moto, and as a result, state distribution utilities are in poor health. While the final order was not an improper exercise of APTEL’s power, this instance can be construed as one where the central government was attempting to regulate the functioning of SERCs (over which it otherwise has no jurisdiction) by writing to APTEL.

The increasing specialization in the administration of justice through the establishment of sector specific tribunals also has repercussions for the broader system of administration of justice. As most legislations establishing these tribunals provide for appeals to the Supreme Court, such laws usually insist that the chairpersons or members of the tribunal, or both be (a) retired Supreme Court judges, (b) serving Supreme Court judges, (c) High Court chief justices, or (d) judges who have served in High Courts for a particular length of time. This arguably creates a high level of expertise in the dispensation of justice in these tribunals.

However, there is no mechanism by which members serving in such tribunals can be re-inducted (if not past the age of superannuation) into the mainstream judiciary. This arguably creates a situation where technical expertise in specific sectors is not channelized back into the mainstream judiciary. The creation of such a two-way process may become imperative in the long run if the increasing tribunalization of justice persists. The present system of promotion and induction into the judiciary emphasizes experience in practicing law or administering justice in different courts and on varied subjects. If tribunals are becoming an important part of the judicial landscape, it is only logical that experience as members of such tribunals also be given weight while considering appointments to the higher judiciary. This would also create a virtuous cycle where good judges would consider serving on tribunals for a period of time before returning to their service in the higher judiciary.

 

Rationale for independent regulation

The last, but perhaps the most significant issue remains the rationale for creating independent regulators. While in some cases there is a need for independent regulation, in some other cases the need for an independent regulator is less easily justifiable. The recent road regulator being proposed is one such example. The need for a regulator has been felt within the sector due to the large number of stalled road projects throughout the country. It was felt that the regulator should deal with “tariff setting, toll policy and modifications, compliance of service levels (for commuters), address public concerns.” The government being one of the parties to such contracts, cannot be the proper entity to mediate such disputes.

None of these functions i.e. ensuring competition, fair-play, and consumer protection however, are those that are usually entrusted to an independent regulator. In other words, the re-negotiation of contracts, regulations regarding toll collection, and other aspects of highway construction are not functions that need to be entrusted to a regulator in the usual course of events. These are not activities, the performance of which, enhances fair competition within the sector. The resolution if these issues may make the development of roads more efficient, but these functions are not those assigned to independent regulators. An official from the Planning Commission has stated that, “In case of roads, everything is decided in the contract itself, and be it the toll rates, other tariff. So, what do we need a regulator for?” Some commentators are justifying the need for such a regulator since the executive has failed to resolve these issues in an efficient and impartial manner.

We therefore need to carefully examine at what point the creation of an independent regulator is in effect an abdication of an essential state function. Many such state functions are questions of policy. They require political negotiation and decision-making. In essence they are policy issues, not regulatory ones. The state cannot abdicate such functions and hand them over to an unaccountable, unelected regulator because it has been unable to perform these functions effectively.

While there are no easy answers to these issues, they do need careful deliberation. There is therefore a necessity for ensuring that while attempts to promote competition within the economy are encouraged, the creation of new regulators and their linkages to the rest of the legal system are thought through.

 

 

State Building in India II: Indian Constitution and new states

31 Jul

I had written this post in 2009 when Telengana first became a major political issue. I am re-posting it since major decisions about the creation of Telengana are underway. Minor edits and updates have been made and are provided in italics. 

In my earlier post on the issue of Telengana’s statehood, I tried to provide a look at the high-handed exercise of the central government’s power to start processes for the creation of new states.  In this part, I try to look at two issues (1) Constitutional provisions regarding state formation, and (2) centre-state relations in relation to state formation.

The provisions for creating new states, and changing the boundaries of new states are provided in Articles 2-4 of the Constitution.  Simply put, a simple law passed by both the Lok Sabha and Rajya Sabha is enough to create a new state.  However, only the central government (“President”) can introduce a Bill for this purpose.  And before introducing the Bill, the states which will be affected have to be consulted.

The process of consultation followed has the following features: (1) The matter is referred to the legislatures of the affected states.  (2) No specific time period within which states have to send their decision back to the centre has been mentioned in the Constitution.  The central government can specify the time period while referring the matter. (3) The Constitution does not mention that the state legislatures have to agree to the proposed creation/alteration of states.  The Parliament can therefore, pass a law creating a new state even if affected states do not agree to the proposal.

Lastly, the names of the states in the Union are mentioned in the First Schedule of the Constitution.  Similarly, the Fourth Schedule lists the number of seats each state is allotted in the Rajya Sabha.  Any law creating a new state would necessarily affect these two Schedules.  Schedules to the Constitution are usually considered parts of the Constitution, and any change to the Schedules has to be done through a constitutional amendment.  However, Article 4(2) of the constitution clearly says that no law creating or altering a new state will be considered a constitutional amendment.

The implications of these provisions are clear: for all practical considerations, the Constitution only requires that the central government should have a simple majority in both houses of Parliament.  The obvious question to ask is whether this system is representative enough to create a new state, and this brings me to the second issue highlighted at the beginning of the page.

These provisions in the Constitution were created at a time when India’s security and sovereignty was at stake, when a number of independent states were forced to merge with the larger Indian state.  There were obvious concerns about giving greater representative power to states who had recently agreed to be governed under the Indian union.  Over the years however, threats of secessionist politics have reduced greatly.  People almost throughout the country acknowledge themselves to be part of a greater Indian union.

However, maintaining the status quo in the Constitutional scheme has greatly reduced political space for raising legitimate regional or geopolitical aspirations within the country.  The Parliament maybe the supreme representative platform for raising issues affecting citizens, it may however not be representative enough.  Though there is no bar for state legislatures on discussing these issues, there seems to be little substantive gain from debating issues they have no practical control over.

Therefore, not only does the present constitutional scheme make it exceedingly simple for the central government to pass laws  creating new states, the procedure involved also undermines the importance of local governments, constituents and state legislatures in the consensus-building process.  It is little wonder then, that groups resort to violence to attract national consciousness.

Ordinance Route

26 Jul

This article first appeared in Frontline on July 24, 2013, and can be accessed here

 

In my article, I examine the true intent behind giving the executive the power to promulgate ordinances, and how the use of this power has been at complete variance from such original intent. The misuse of this power over time is a strong incentive to examine ordinance making power as it currently exists. I argue that having strong standards of judicial review would be one tool to help misuse of this power:

 

“Ordinance-making power is not a new feature added to the Indian Constitution. Articles 42 and 43 of the Government of India Act, 1935, gave the same power to the Governor General. Members of the Constituent Assembly, having experience of abuse of such power, were understandably wary of including the same in the Constitution. Both Hriday Nath Kunzru and Professor K.T. Shah called for restricting the executive’s power to promulgate ordinances through greater oversight by legislatures. They were, however, overruled by Dr B.R. Ambedkar, who stated that ordinance-making powers were necessary since existing law might be deficient to deal with a situation “which maysuddenly and immediately arise”. According to him, the only solution was to “…confer upon the President the power to promulgate a law which will enable the executive to deal with that particular situation because it cannot resort to the ordinary process of law…” when the legislature was not in session.

 

It is clear that the framers of the Constitution envisaged ordinance-making powers only for unforeseen, sudden situations and where the executive required additional legal sanction to address the situation. The executive, however, decided to completely disregard this requirement of necessity for immediate action. According to data furnished in the Statistical Handbook of the Ministry of Parliamentary Affairs, more than 41 ordinances were promulgated during the term of the first Lok Sabha itself. Indeed, in the pre-Indira Gandhi period, that is, before 1966, more than 75 ordinances were passed by the Central government. The necessity of taking immediate action by promulgating ordinances has remained debatable at best through the years.”

 

Certain instances show how the use of this power has been at complete variance from the requirements of immediate necessity:

 

“The Telecom Regulatory Authority of India (TRAI) was created in 1997 first by an ordinance and then by an Act of Parliament. The Minister in charge stated that the ordinance route was taken since “…we were facing difficulties in attracting private investment without an authority like the TRAI. Private investors… were not convinced about our ongoing processes of privatisation and liberalisation.” Important as it is to send out a signal of commitment towards a particular government policy, in this case liberalisation of the telecommunications sector, it is hard to make the case that had immediate action by promulgating an ordinance not been taken, private investment in the telecommunications sector would never have happened.

Similarly, the Electricity Regulatory Commissions Ordinance was promulgated on April 25, 1998, one day before the government of the day decided to convene the next session of Parliament. The National Commission for Minority Educational Institutions (Amendment) Ordinance, 2006, was promulgated in January 2006, even though Parliament was to convene from February 16, 2006. In both cases, no satisfactory reason was given for promulgating these ordinances in haste…

..The National Tax Tribunal Ordinance was promulgated in 2003. As per the parliamentary debate on the National Tax Tribunal Bill, the ordinance was promulgated because various committees had recommended that such a tribunal be established, and as “…huge revenue is blocked in litigation because of pendency of appeal and reference is before the High Court, which has adverse affect on the national economy”. As one Member of Parliament pointed out, though a number of months had elapsed since the promulgation of the ordinance, no tribunal had been established at the time of the debate and no cases referred to it.”

 

These instances clearly reveal a misuse of ordinance making power that urgently needs course-correction.

Transparency and Political Parties – Finding the Right Instrument

12 Jul

In a recent post, I had written on why I think bringing political parties under the Right to Information Act is a bad idea. Economic and Political Weekly recently published my article on the same topic, where I critique the judgement of the Central Information Commission in detail, and argue that transparency in incomes and expenditures of political parties should be enforced by the Election Commission, rather than under the RTI Act.

While the CIC judgment follows developing judicial precedent under the RTI Act, bringing political parties under the purview of this Act opens a Pandora’s box that the CIC itself probably has not thought through. International practice demonstrates that the onus of creating more transparency within the political system is the task of independent election commissions.

 

The EPW article can be found here

Dams and disasters in the Himalayas

10 Jul

This post was first published as an op-ed by Mint on July 9, 2013. The original article can be accessed here

 

Relief operations in disaster-ravaged Uttarakhand have ended and the time seems ripe to take account of the institutional frailties that have contributed to the ongoing human disaster in the state. Chief minister Vijay Bahuguna has been blamed for inaction when the disaster first struck and has also admitted that the state did not meet the norms for national disaster management. The Union government is also mulling changes to the Disaster Management Act, 2005, to make national disaster response more effective.

Dig a little deeper, and the story, however, indicates multiple institutional failures. In short, the story is not of one or two agencies failing to act. Various factors point to a disturbing lack of clear prioritization, capacity, coordination across multiple government agencies.
In 2012, a paper published by Maharaj Pandit and Edward Grumbine in the journal Conservation Biology highlighted that there were 292 dams proposed and under construction all over the Himalayas. If all of them were to be completed, the dam density in the region would be the highest in the world (an average of 1 dam for every 32km of river channel). Figuring out the impact of such large-scale construction on human settlements in ecologically sensitive areas is going to be difficult even if it is not exactly rocket science. This becomes disturbing when one considers the functioning of the expert appraisal committees (EAC) of the Union ministry of environment and forests that clears river valley projects. In one report (http://bit.ly/18agNGy ), the South Asia Network on Dams, Rivers, and People (SANDRP) noted that:

“The Union ministry of environment and forests’ (MoEF) expert appraisal committee (EAC) on river valley and hydroelectric projects (RVP) has considered a total of 262 hydropower and irrigation projects in close to six years since April 2007 when the new committee was set up to its latest, 63rd meeting in December 2012. It has not rejected any project in this period.” (Page 3 of the report).

If you are not sufficiently bothered yet, consider this. According to SANDRP the Central Water Commission (CWC), which publishes the National Register of Large Dams (NRLD) apparently, does not contain an exhaustive record of large dams. In response to applications under the Right to Information (RTI) Act, 2005, filed by SANDRP, CWC replied that it only relies on information given to it by state governments. Consequently, according to SANDRP, for 2,687 out of 5,187 large dams listed in NRLD, there is no mention of the name of the river on which these projects stand.
SANDRP’s analysis is not an isolated instance. This year, the Comptroller and Auditor General (CAG) of India issued a report on disaster preparedness in India (http://bit.ly/12aPXZt ). The report is scathing with respect to the preparedness and functioning of both the National Disaster Management Authority (NDMA) and the Uttarakhand disaster management authority. The report, for example, highlights that 653 lives have been lost in the past five years to landslides, hailstorms, excessive rain, earthquakes, cloud bursts, avalanches and fire accidents. Yet, the chief minister stated there is no way the state could have been prepared for cloud bursts. Additionally, the state disaster management plan was not prepared, the state disaster management authority never met since it was created and there was no state plan for early warnings. However, and perhaps revealing the skewed sense of priorities, 71,474 government and non-government personnel had been trained through 546 workshops.
CAG also notes that NDMA and the governments at the Union and state levels have performed abysmally with respect to communications systems, capacity building and planning for specific disasters. For example, to address the problem of communications systems being disrupted during national disasters, NDMA was to set up the National Disaster Communication Network. The concept paper for this purpose was developed in October 2007, but the Union ministry of home affairs had not finalized the project by December 2012.
These examples serve to highlight the vast inefficiencies in existing government design and their cumulative potential to exacerbate natural calamities into man-made disasters. While accountability for lapses at various levels should be fixed, it is also important to get right the design, capacity and incentives of public agencies and officials. We may be able to create a more balanced system of ecological preservation and development by a nuts-and-bolts analysis of what goes wrong within existing government agencies, rather than raise the promise of newer, stronger and better legislation to cure all administrative failures. Focusing on issues of capacity, coordination and creating clear, transparent objectives for different agencies may help government in general be more pro-active rather than reactive in matters such as disaster management. Plugging leaks in this case, may therefore be better than building dams.
Anirudh Burman works on law and governance issues with the Centre for Policy Research, Delhi.
He can be reached at aburman@llm12.law.harvard.edu.

The narrative of judicial appointments

4 Jul

This post first appeared as an article on Bar and Bench on July 2, 2013, and can be accessed at their website here

News reports have indicated the government’s plan to establish a judicial appointments commission (“JAC”) for the appointment of Supreme Court and High Court judges. If established, the body would not only mark a sharp change from the current appointment process, but also from the constitutionally mandated procedure for appointment. The system at present however, is also markedly different from what the Indian constitution mandates. It remains to be seen whether the proposed JAC leads to better outcomes.

The crucial aspect in measuring outcomes is however, the correct determination of the desiredoutcome. In order to assess this issue, certain other considerations need to be examined, which are explained in this paper. These are: (a) constitutional provisions, and the original process of appointment, (b) the present process of appointment and their historical development, (c) the views of different experts and commissions on the issue, and (d) the determination of the desired outcome, and whether the proposed JAC would lead to this desired outcome.

Constitutional provisions

Section 124(2) of the Constitution provides a fairly neat method of appointing judges to the Supreme Court. It states that the President (read the Executive) shall appoint a judge of the Supreme Court after consultation with such judges of the Supreme Court and High Courts as he may deem necessary. The Chief Justice of India (“CJI”) has to be mandatorily consulted regarding the appointment of every judge other than to the position of the CJI. Similarly, under Article 217(1), the President of India appoints judges to High Courts after consultation with the CJI, the Governor of the State, and the Chief Justice of the High Court (for the appointment of a judge other than as Chief Justice of that High Court).

The primary authority for the appointment of judges under the Constitution is thus the President, or the central executive (“Executive”). The Executive has to discharge this function in consultation with other constitutional functionaries. Notice however, that this consultation process is not mandatory (apart from with the CJI for Supreme Court judges, and the Chief Justices of the High Courts for High Court judges). The Constitution also does not state that the Executive has to abide by the opinion of other constitutional functionaries while appointing judges.

Over the years though, this position has been completely deviated from, for reasons many consider completely justified.

Present process and origin of process

The Indian Constitution, like many other constitutions, creates a separation of powers between different wings of the state i.e. Executive, Legislature, and Judiciary. However, all three wings remain accountable to each other in some form or the other. The central and state executives for example, are directly accountable to Parliament and state legislatures respectively. Similarly, while the judiciary is independent of the Legislature and the Executive in most aspects, the power of appointment vests with the Executive as explained above, and the power of removal rests with Parliament. This system is designed to enable the judiciary to remain accountable to the democratic process in some measure.

The present process of appointments arose out of a perceived need to remedy certain ills that became apparent with the constitutionally mandated procedure. Seervai’s Constitutional Law of India (4th Ed., Vol. 3) records that the day before CJI Venkataramaiah retired from the Supreme Court, he gave an interview stating:

…such judges are appointed, as are willing to be ‘influenced’ by lavish parties and whisky bottles…in every High Court, there are at least 4 to 5 judges who are practically out every evening, wining and dining either at a lawyer’s house or a foreign embassy…practically in all 22 High Courts, close relations of judges are thriving. There are allegations that certain judgements have been influenced though they have not been directly engaged in lawyers in such cases.

This extract encapsulates, in brief, the concerns regarding the improper behaviour and conduct of judges in the higher judiciary. Though a number of past judgements had interpreted the respective powers of constitutional functionaries regarding the transfer and re-appointment of judges, the case of Supreme Court Advocates-on-Record v. Union of India (“Judges Appointment case”) is responsible for moving towards the present system of appointment of judges. I summarise the main points laid down by the court below:

1.     The process of appointment of judges “is an integrated participatory consultative process”. All constitutional functionaries must perform this duty collectively to reach an agreed decision.

2.     The proposal for appointment of a judge must arise from the CJI (for appointment of a Supreme Court judge) and from the Chief Justice of a High Court (for a High Court judge).

3.     In the event of conflicting opinions, the opinion of the CJI has primacy. No appointment can be made without the concurrence of the CJI.

4.     A collegium system of appointment must be initiated.

In 1998, in the case In Re Presidential Reference: Under Article 143(1) of the Constitution of India (“2nd Judges Appointment Case”)the Supreme Court further evolved this doctrine and created a system wherein judges would be appointed by a collegium consisting of the four senior-most judges of the Supreme Court. Though the Executive would make the actual appointment, it would have no other role in the appointment of judges to the High Court or Supreme Court. As recently as January 2013, the Supreme Court rejected a plea to revisit the Judges Appointment Cases (read more here).

These two cases therefore departed considerably from the procedure enshrined in the Constitution. Many have argued that insulation of appointments from executive influence is necessary to promote judicial independence, but it is debatable whether this insulation has led to a qualitative betterment in the conduct of the judiciary as a whole, or the quality of judgements. Additionally, various administrative and structural issues have been highlighted. Over the years, political parties, experts and commissions have proposed a number of mechanisms for the appointment of judges. It may be worthwhile to consider them briefly below.

Alternative mechanisms

The table below encapsulates in brief the proposals of various bodies regarding the appointment of judges.

Report/Commission/Body Recommendations
Law Commission – 80thReport (1979) Appointment process in High Courts to be initiated by CJ of that High Court. Constitutional procedure to be followed in other aspects. The Chief Minister of the state is free to disagree with choice of the CJ. One-third of judges appointed should be from outside the state.Interestingly, the report mentioned the need for a “Judges Appointment Commission”, for eliminating the “sway of political or other extraneous considerations…”.
Law Commission – 121stReport (1987) Recommended the establishment of a National Judicial Service Commission. The CJI would be the Chairman, and there would be three senior-most judges of the Supreme Court, three senior-most CJs of the High Courts, the Minister for Law and Justice, the Attorney General of India, the outgoing CJI, and a legal academic in the Commission. Additionally, while deciding a vacancy in a particular High Court, the CJ of the High Court, the Chief Minister and Governor of that state must be co-opted into the deliberations of the Commission.
67th Constitutional Amendment Bill, 1990 Proposed the creation of a National Judicial Commission composed of serving judges headed by the CJI.
Law Commission – 214thReport (2008) Recommended restoration of the original constitutional procedure to be followed in wake of the Supreme Court’s decisions in the Judges Appointments cases.
National Advisory Council Paper titled “A National Judicial Commission: Judicial Appointments and Oversight Recommended creation of National Judicial Commission with the Vice-President as Chairperson, and the Prime Minister, Speaker of Lok Sabha, Law Minister, Leaders of Opposition from both Houses of Parliament, and the CJI as other members. The President would have the power to reject a candidate recommended by the NJC.

As may be noticed from the table above, all the reports above emphasize the need for a broad-based consultative framework for the appointment of judges. Significantly, all these reports have also been informed by practices in other countries, most of which allow for some sort of a consultative process between members of the judiciary, executive, legislature, and civil society. The process being proposed by the Central Government at present also aims to create a broad-based consultative process.

Proposed process

According to news reports (here and here), the proposed Judicial Appointments Commission will probably have the Prime Minister, the Leader of Opposition, the Law Minister, the CJI, four other senior judges of the Supreme Court, and a prominent jurist as members.  The process therefore seeks to give the executive and legislature a greater role in the appointment of judges than the collegium system.

The question however remains: what is the desired outcome? The proposed system seeks to increase democratic accountability in the process of appointments. This is thought to be necessary due to the widespread perception that judicial appointments remain non-transparent, that delays in appointments occur due to the current in-house process of appointment, leading to a huge backlog of pending cases, and finally, that democratic accountability is an end in itself.

But is democratic accountability an end in itself? Does democratic accountability also not seek to further other expectations we may have from the judiciary, such as the writing of better judgements, decrease in backlogs and an increase in access to courts? If yes, would these goals be served merely by the creation of a Judicial Appointments Commission? The point I am trying to make is whether the judiciary can be made more accountable, more accessible, and qualitatively better without tinkering with the present appointment process? Those in favour of changing the status quo would point out that the present system is a complete departure from the constitutionally prescribed procedure. The simplest response is that the process being contemplated would also require a constitutional amendment!

There is a great need to reform the present system of appointment, in order to make it more transparent, and to achieve other social and economic ends. However, we need to think through the available alternatives for meeting our goals, and ensure that the legislative measures we take actually help in the realization of those goals.

Proposed CBI Reforms: Will the Central Bureau of Investigation remain a “caged parrot”?

2 Jul

The Central government recently set up a Group of Ministers to propose reforms and ensure the functional independence of the CBI. This came in the wake of the Supreme Court criticizing the government for its interference in the Coal blocks allocation scam. The Court had asked the government to “come out with a law to insulate the agency from external influence and intrusion”. The government has recently cleared the suggestions of the GoM on ensuring the independence of the CBI. This post examines the proposed reforms, their critique, and other areas of CBI’s functioning which need urgent attention.

Legal and administrative background

(Sourced from here)

The CBI has its origins in a special order of the British Government in the early stages of World War II:

“An executive order was…passed by the Government of India in 1941, setting up the Special Police Establishment (SPE) under a Deputy Inspector General in the then Department of War with mandate to investigate cases of bribery and corruption in transactions with which War and Supply Department of the Government of India was concerned.”

The activities of the SPE were then extended to the Railways, and in 1946, the Delhi Special Police Establishment Act was passed. The Central Bureau of Investigation was set up by a resolution dated April 1, 1963. The CBI would investigate not only cases of bribery and corruption, but also major financial law violations, and other serious crimes. The CBI’s power to investigate crimes currently arises from Section 2 of the DSPE Act, 1946.

Administrative supervision over the CBI is divided between the Ministry for Home Affairs, and the Ministry of Personnel. The overall supervision of work, and budgetary control over the CBI is exercised through the Ministry of Personnel.

Recent proposed reforms

Over the years, the CBI has understandably come in for a lot of criticism regarding its functioning. It has been commonly derided as a “political tool” in the hands of the Central government. The recent criticism by the Supreme Court spurred the government into setting up a GoM to propose reforms to make the functioning of the CBI independent. The GoM consisted of:

1. Shri P Chidambaram, Minister of Finance;
2. Shri Sushilkumar Shinde, Minister of Home Affairs;
3. Shri Kapil Sibal, Minister of Communications and Information Technology and Minister of Law and Justice;
4. Shri Salman Khurshid, Minister of External Affairs; and
5. Shri V Narayanasamy, Minister of State in the Ministry of Personnel, Public Grievances and Pensions; and Minister of State in the Prime Minister’s Office.

The GoM recommended that a panel of retired judges will monitor the investigations being undertaken by the CBI to ensure that the investigations are conducted without any external interference. In addition, it also recommended an increase in the financial powers of the CBI Director, and a new mechanism for the appointment of the Director (Prosecution) which is a Law Ministry appointee at present. These changes will be brought about by way of amendments to the DSPE Act.

These changes were heavily criticized by Leader of Opposition, Rajya Sabha, Mr. Arun Jaitley:

“The recent decision of the Union Cabinet based on GoM recommendations is a camouflage. It creates an illusion by removing the political executive and creating a proxy institution instead. The government’s decision is a remedy worse than the existing problem”

As reforms go, the above-mentioned reforms proposed by the government seem fairly innocuous. Merely appointing a panel of retired judges may not ensure the CBI’s independence. This panel has to have the right incentives to perform their role efficiently. If such incentives are not in place, even their independence will eventually be compromised. This is so, especially since the panel itself will be selected by the Central government. Second, and on a related note, this move could well become just a post-retirement benefit for retired judges. Enlisting them on this panel could have the effect of co-opting them into the process of subverting the CBI’s independence rather than enhancing it. Third, there are a number of other areas of reform of the CBI which are urgently required. Without these, the CBI will struggle to become truly independent of the government.

Other required reforms

A Select Committee of the Rajya Sabha to look into the Lokpal Bill had suggested much more drastic reforms to the CBI in order to ensure its independence (Summary here). Some of these are:

  • The CBI Director would be appointed by a panel consisting of the Prime Minister, the Leader of Opposition, Lok Sabha, and the Chief Justice of India.
  • The CBI would be under the superintendence of the Lokpal.
  • The CBI should have an independent Directorate of Prosecution, who shall be recommended by the Central Vigilance Commission.
  • The CBI Director, and Director of Prosecution shall have a fixed term of two years.

In addition, the Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice had examined the functioning of the CBI and presented a detailed report in 2008. Their main recommendations regarding the working of the CBI were:

  • The number of officers placed within the CBI on deputation should be reduced. Greater emphasis should be placed on direct recruitment of CBI officers, and service conditions such as promotions should be incentivised for direct recruits.
  • The Committee noted that there was a large number of vacancies in the CBI. “It is of the opinion that the large number of vacancies is bound to result in severe strain on the existing manpower who are hard pressed to deliver positive results and that it is detrimental to professional excellence and efficiency.” It recommended that steps should be taken on a “war-footing” to fill up existing vacancies within three months.
  • Shockingly, the Committee also noted a 27% shortage in residential accommodation for CBI personnel. Furthermore, as of 2008, investigating officers had not been provided with mobile phones or laptops!
  • The Committee had also recommended greater financial powers for the CBI Director.

The problem of vacancies

The problem of vacancies within the CBI is indeed acute. A recent press release highlighted more than 800 existing vacancies within the organization. The relevant information is given below:

Cadre

Sanctioned Strength

Available Strength

Vacancy

Executive

4510

3901

609

Legal

318

258

60

Technical

155

115

40

Ministerial

1,538

1,436

102

Canteen posts

70

43

27

TOTAL

6,591

5,753

838

(Sourced from here)

The CBI needs to work independently of the government. Yet, it is a government department, and has to be accountable to democratically elected officials. The reforms proposed by the GoM do not balance this tension between independence and accountability. Unless this is done, the CBI cannot become a well functioning organization.

Death at Kedarnath: Mule owners and their right to strike

26 Jun

Little noticed news reports in a couple of papers (here and here) indicate that the death of many pilgrims in Kedarnath may have been exacerbated by the actions of local mule owners and contractors for car parking lots in the days leading up to the heavy rains and clash floods. The local mule owners and and contractors apparently went on a strike, and prevented private chopper services from operating on June 14, 15, and 16.

Ten private helicopter services ferry pilgrims from Phata and Guptkashi to Kedarnath and back. The car park owners are located in Gaurikund, from where pilgrims walk, or ride on mules to reach Kedarnath. The helicopters were not allowed to land in Kedarnath for two days. Additionally, the mule owners also went on a strike. As a result, there was an unusually large concentration of pilgrims in Kedarnath who could not travel back. This may have contributed to the increase in loss of human life, as so many pilgrims were left stranded when the flash floods struck the region.

 

Why were the mule operators and car parking contractors striking?

As per the news report, local officials said the strike was ostensibly on grounds of “environment protection”. The actual dispute was however that the helicopter services were seen hurting the economic interests of the mule owners and contractors. Their business was suffering due to the decrease in demand for their services owing to the helicopter ferry service. The state government was able to convince these protesting groups to allow helicopter services to land only on June 16. June 16 was also when the rains and flash floods struck the region.

 

How could this have been prevented?

At one level this incident is just a story of short-sighted self interest causing the unnecessary loss of human lives. However, as vague as it sounds, developing a culture that emphasizes the protection of fundamental rights could in the long run, prevent such occurrences.

Let us for one moment keep the humanitarian tragedy to one side. On June 14 and 15, there was little indication (apart from forecasts of heavy rainfall) that a natural calamity of such magnitude would befall the region. At that point of time, the “dispute” between the mule owners and contractors on the one hand, and the helicopter service providers on the other hand was a conflict between two sets of individuals trying to protect their fundamental rights. Article 19(1)(g) of the Constitution allows all citizens the right to “practise any profession, or to carry on any occupation, trade or business”. What this means is that the state cannot take away this right from any individual.

The Supreme Court has clearly held, that since all citizens possess this right, the right of one citizen cannot be curtailed for facilitating the exercise of the Fundamental right of another person (Railway Board v. Niranjan AIR 1971 SC 966). In short, the right of the helicopter service provider cannot be curtailed to facilitate the fundamental right of the mule owner or the car park contractor. One may argue that in this case, the fundamental right of the helicopter service providers was not curtailed by the state, but by other private citizens. However, the state, by failing to protect the rights of the helicopter service providers, and by allowing the local protesters to prevent the helicopters from landing, did in fact prioritze one right over the other. The state may not have violated fundamental rights, and it may not suffer any liability for the same. However, fundamental rights were curtailed in the present case, and the state could have done more to prevent the same.

It must also be stated that while the Constitution allows people the freedom to protest, it does not allow protesters to infringe on the fundamental rights of other citizens while protesting. The mule owners and car park contractors are well within their rights to protest, but in doing so, they cannot prevent the helicopter services from operating, as that infringes on someone else’s freedom to conduct business. The Supreme Court has held that violation of the fundamental right of one individual by another individual (without the support of the state) is not considered a violation of Article 19 (Samdasani v. Central Bank of India AIR 1952 SC 59). On the face of it then, fundamental rights cannot be said to have violated as the mule owners were private operators. However, the district administration was in charge of regulating the mule service. The district administration therefore had an obligation to resolve issues faced by mule owners and also not allowed the rights of the helicopter service providers to be infringed.

Moreover, even if the state has no positive obligation to protect fundamental rights under Article 19, it does have the power to create reasonable restrictions. Sometimes, the creation of such restrictions enable the better enforcement of these fundamental rights. For example, the Supreme Court has held the following to be reasonable restrictions on fundamental rights: (a) protection of slum-dwellers against excessive rent, (b) protection of slum dwellers against eviction, and, (c) protection of debtors from excessive interest. There was thus, nothing preventing the district or state administration from interfering in the protest by the locals to impose a reasonable restriction in the interests of the general public. The state may not have violated a fundamental right by failing to do so. But it does have certain powers given to it under the Constitution, which it could have utilised to ensure the general public was not affected.

 

To be clear, I am not making the case that the state violated fundamental rights in this case. However, the state could, and should have taken a rights-based approach and made sure that helicopter ferry services were not interrupted due to the ongoing protests. If the helicopter service providers had the required permissions and clearances to ferry passengers to and fro from Kedarnath, the government should in no case have allowed local protesters to prevent such a service. It affected the rights of the service providers, and it in effect was restricting the rights of the pilgrims to enter into a contract with a service provider of their choice. While the pilgrims were held to ransom and for all practical purposes denied any means of transport, the state administration merely sent two officials to negotiate with the striking individuals. In short, the government was trying to negotiate the extraction of stranded pilgrims by locals who were acting completely illegally!

This is by no means an isolated incident. While the state routinely subverts many legitimate protests for the enforcement of fundamental rights, it also bends over backwards routinely to negotiate with misbehaving, but important constituencies. Protection of rights in such cases often takes a backseat, and every once in a while, this leads to a completely unnecessary, and tragic loss of human lives. Pilgrims, literally, be damned.

The Naxal, the Tribal, and the Doctor

19 Jun

Recent news reports state that the Chhattisgarh government has asked International Committee of the Red Cross (ICRC) to suspend its operations in the Bijapur district where it had operated for the past two and a half years. ICRC had been providing medical help to violence hit people in the tribal dominated area. This order of suspension raises important questions about (a) the duty and ability of the state to provide medical services to the tribal population in that area, and (b) the willingness of the state to allow medical services to affected people in an area affected by Maoist violence.

 

Bastar district is a predominantly tribal area, with more than two-thirds of the population belonging to the Scheduled Tribes category. Ninety percent of the population is rural, more than 87% of the population is employed only seasonally, and literacy levels are among the lowest in Chhattisgarh. Two thirds of the Village Reports, or Jan Rapats prepared by the villagers themselves (Jan Rapats are prepared by all villages in Chhattisgarh, and reflect the needs and views of the villagers) state that health facilities in these areas are very poor.

“Most villages emphasise that the availability of medicines, appointment of health personnel, improvement in the quality of health care, Government aid, and the availability of clean drinking water are areas that require attention.”

 

Though 6.25% of Chhattisgarh’s population is based in the Bastar district, the area had 3 hospitals, no dispensaries, and 57 Primary Health Care centres as of 2001. Forty percent of the population had no access to toilet facilities, safe drinking water, and electricity as of 2001.

(Human Development Report Chhattisgarh, 2005. Available here.)

 

Bastar has also been in the news recently owing to the naxal attack on Congress’ Parivartan Yatra convoy on May 25, 2013, during which senior Chhattisgarh Congress functionaries and security personnel were killed.

ICRC first expressed its willingness to enter Naxal affected areas in Chhattisgarh in 2008, and was welcomed by Chief Minister Raman Singh (Sourced from here):

“Certainly, ICRC plays a vital role in mitigating the sufferings of people in conflict zones across the globe. With the kind of resources and expertise ICRC has at its command, its presence will benefit the poor tribals of the region where a huge population is suffering and hundreds of children have been orphaned in the conflict…”

Interestingly, he went on to say,

“We have no problem even if such organisations provide medical assistance to Naxalites injured in encounters with security forces…We also do the same thing. Whenever Naxalites are injured, they are hospitalised so that they can be punished by a court of law for their crimes.”

 

Since 2010, ICRC has run a Primary Health Care centre, mobile clinics, and a hand-pump rehabilitation programme to ensure safe drinking water for the tribal population. According to another Times of India story, international agencies have helped play a crucial role in providing essential health care facilities in the region:

“Last year, when a diarrhoea epidemic broke out in South Bastar, killing nearly 100 people, Bijapur administration had enlisted the support of MSF and UNICEF, apart from calling doctors from other districts. But in Dantewada, in the absence of such an intervention, and in the face of an acute shortage of doctors, a large unknown number of people died without medical support.”

Then why the order of suspension?

The order of suspension has ostensibly been given by the district administration because “…ICRC is yet to enter into a Memorandum of Understanding with the state government” regarding its work in the region. State government sources have said that since ICRC is an international organization, it needs “certain clearances from the centre” for carrying out its operations.

If ICRC has operated in Bastar since 2010, how was it able to function without obtaining clearances from the central and state governments for almost three years? How was it able to bring in medical equipment, and (presumably) foreign personnel into a security sensitive area, and operate without the required permissions for all this time? Does the state and district administration seriously expect people to believe that they allowed ICRC to work in a Naxal dominated area for close to three years without the proper paperwork?

 

News reports indicate that other reasons may also be at play here. In 2011, the police in south Bastar and Dantewada had alleged that ICRC, along with MSF (Doctors Without Borders) which had been operating there since before ICRC started working there, was facilitating the treatment of Maoist rebels. Two Maoist rebels who had been arrested claimed that they were being treated by ICRC and MSF.

“These two organisations are deliberately going to Maoist camps and spending weeks. The foreign doctors should know what they are doing. I am from an enforcement agency and can’t welcome them having extra love for Maoists, but not for people injured in Maoist brutalities.” – Senior Superintendent of Police, Dantewada (Sourced from here)

 

According to him, people from the two organisations could be prosecuted under the Chhattisgarh Special Public Security Act that prohibits direct or indirect contact with Maoists.

 

The recent order of suspension, coming soon after the Maoist attack on May 25 can then also be seen through the lens of an overzealous state and district administration irked by the fact that ICRC is treating Maoist rebels. If in fact this is the case, several questions beg to be asked: What prevents doctors from treating Maoist rebels injured in conflict, especially after the Chief Minister himself expressly stated that he would be fine with such treatment? Does the duty of a doctor to treat injured people depend on whether a person is suspected of being an insurgent or terrorist? Does such treatment in itself make a doctor an accomplice in the crimes the injured is suspected of having committed? If yes, should lawyers representing suspected terrorists also be made accomplices to crimes committed by their clients?

 

The central government has repeatedly touted its plan of combining development with improving law and order as a solution to Naxalism in these regions. ICRC is one of the most reputed health care agencies operating in Bastar, an area with a clearly documented lack of health care facilities. The administration at all levels clearly needs to reconcile its twin goals of development and security enforcement in a transparent, and rational way. Essential health care for tribals in a conflict-ridden area, and the work of doctors cannot be left to the alternating prioritization of security enforcement and development. This is especially so when the Jan Rapats reveal how miserably the state has failed in meeting the expectations of the local population.

 

The extinction of the Telegram

14 Jun

Firstpost reports that the Telegraph service in India will be discontinued from July 15, 2013, 160 years after the service was started in India. While telegrams have really become a relic, a service that people hardly use anymore, the growth and advent of telegraphs in India parallels the growth and spread of the British empire in India.

 

As per a fantastic article in the Telegraph, telegraphs “expedited the East India Company’s total commercial dominance of the country”. The telegraph’s use in India was “pioneered by William O’Shaughnessy, a surgeon and inventor”. Lord Dalhousie, the then Governor General of India recognized its potential, and asked for the first telegraph line in India to be built near Calcutta. In 1857, telegrams proved decisive in the British victory over the Indians in the Revolt of 1857.

“…with one captured Indian soldier, on his way to the gallows, reportedly pointing at the telegram device and stating: “There is the accursed string that strangles us.”…” (Telegraph, linked above)

 

In 1947, Nehru sent a telegram to British Prime Minister Clement Atlee of an important development about Kashmir:

“A 230-word message sent in October 1947 by India’s first Prime Minister Jawaharlal Nehru informed his counterpart in London, Clement Attlee, that the disputed state of Kashmir had been invaded by Pakistani forces. “We have received urgent appeal for assistance from Kashmir government,” he wrote. “We would be disposed to give favourable consideration to such request from any friendly state.” (Sourced from The Independent, here)

 

Today, the BSNL sends only about 5,000 telegrams a day, down from several lakhs decades earlier. This is obviously because of the rise and spread of landline telephony, and now mobile telephony and internet. India is however, one of the few countries in the world to keep up and use telegrams on a large-scale in this day and age. The maintenance of this infrastructure, has according to Firstpost (linked above), become too expensive.

“Faced with declining revenues, the government had in May 2011, revised the telegram charges after a gap of 60 years. The telegram charges for inland services was hiked to Rs. 27/50 from Rs. 3/50, 4/50 earlier.””

 

Telegrams however, still have a role to play: apparently, for soldiers requesting leave, or a court requesting certified information, a stamped telegram is still the only document accepted (The Independent, cited above). As a lawyer, I find the latter assertion a little suspicious, but would not be surprised if it were true, given the archaic nature of some of our laws and judicial infrastructure!

P.s. Yes, this post has nothing to do with new and important policy developments in this country everyday. But extinction is at least as interesting as evolution. Thanks to Shubho Roy for giving me this idea.

 

John F. Kennedy used to joke during his 1960 presidential campaign that he had just received a telegram from his father. “Dear Jack: Don’t buy one more vote than necessary. I’ll be damned if I pay for a landslide.”

(The Telegraph, sourced from here)

 

Should political parties be subject to the Right to Information Act?

10 Jun

The Central Information Commission (CIC), on June 3, 2013, stated that political parties are “public authorities” under the Right to Information Act, 2005 (RTI Act). Public authorities under the RTI Act are required to make pro active disclosures regarding their organization and its functioning. In addition, they have to appoint Public Information Officers (PIOs). Members of the public can write to PIOs as per the procedure under the RTI Act, and get any information about that public authority which is not an official secret. The CIC’s decision has been uploaded here: CIC_order.

While I am an ardent supporter of greater transparency into the working of political parties, I do have reservations about the CIC’s decision. In this post, I intend to address one such reservation: information asymmetry. The RTI Act gives individuals the right to receive information from public authorities. However, it does not mandate that such information received should then also be further shared with a wider public. Therefore, if I receive some information from a political party under the RTI Act, I have the right to not share such information with anyone else. Therefore, there is an asymmetry in information between me, and every other member of the public, who would also be interested in this information. How I choose to use such information is then up to me.

I am of the opinion that this asymmetry in information is not an issue when citizens seek information from government departments about ration cards and electricity bills. Those pieces of information pertain to individuals, and there is nothing to be gained by making such information public to all. However, the chief concern about political parties are these: (a) their sources of funding, (b) their manner of expenditure, and (c) how they use any public money/subsidies given to them. This information should be provided to everyone freely. It should not be left to an individual applicant to file an RTI application to get this information. Therefore, it would be much better if the Election Commission frames rules requiring disclosure by political parties of all their sources of income and their utilisation of public funds.

Given below are excerpts from a book titled “Funding of Political Parties and Election Campaigns” which show how parties are funded, and what reporting requirements exist in some other countries around the world (The information given below is copied directly from the linked document). In light of these, I would be very interested in hearing your thoughts on the same. Please feel free to comment and respond.

Africa

Sources: Donations are the modal source of political financing in Africa. The major sources of funding remain big business leaders or corporate elites.

 

Indirect funding: Free air time on radio and television or free advertising space in the publicly-owned print media. Inmany African countries the opposition parties have been too weak and divided to succeed in extracting from the government even the most basic aid the state can give to political parties, namely, free and equal access to the government-owned and -controlled mass media. In Kenya it took the threat of a lawsuit and the personal intervention of the visiting SecretaryGeneral of the Commonwealth to secure equal access for the opposition parties – 90 seconds per day “paid up” advertising on Kenya Broadcasting Corporation’s radio and television, and live coverage “where possible” of their rallies.

 

UK

Disclosure requirements: Parties must publish both the names of donors and the exact amounts of their donations when they amount to GBP 5.000 (Int’l $ 6.900) or more annually, or GBP 1.000 (Int’l $ 1.400) at the constituency level. Under the new law, audited annual accounts of parties’ income and expenditures will have to be delivered to the Electoral Commission within six months of each year’s end.

 

Indirect funding: In the UK free broadcasting time is conventionally allocated to parties both during election campaigns and between elections by the BBC, and on a voluntary basis by commercial channels, which consider it a public duty.

 

Australia

Disclosure requirements: At present each party’s agent is required to give detailed information in their annual report of transactions of an aggregate of AUD 500 (Int’l $ 330) or more with persons or organizations.For those over AUD 1.500 (Int’l $ 1.000), names and addresses must be supplied. Non-monetary donations (subsidies in kind by private donors), such as loans of company cars or business jets, must also be included, with a market price equivalent.

The parties must disclose totals of their receipts, payments and debts. The annual reports, covering the period from 1 July to 30 June, must be lodged with the AEC by 20 October. Although they are not published they become available for public inspection at the AEC offices from 1 February of each year.

 

Indirect funding: In Australia free media time has traditionally been provided by state-owned radio and television services for policy speeches (which correspond to a party election manifesto) and advertisements, and by commercial radio and television stations for policy speeches. In Australia donations up to AUD 100 (Int’l $ 67) by individuals are tax-exempt.

 

Canada

Disclosure requirements: In Canada the source and amount of contributions over CAD 200 (Int’l $ 160) have to be disclosed. Individuals will be mentioned by name and the amount donated stated. Privacy concerns, however, mean that the address, employer and occupation of the donor and even the date of the donation are not included in the information disclosed on contributions.

The chief agent of a registered party has to transmit to the Chief Electoral Officer (CEO) an annual return of the party’s receipts and expenses (other than election expenses) within six month of the end of the fiscal (i.e., calendar) year. In addition, within six months from the date of a general election the chief agent must file a return of the election expenses incurred by the party.

 

Indirect Funding: In Canada radio and television stations have to make up to 6,5 hours of prime time available for paid advertising or political broadcasts by the parties during the last four weeks of the election campaign. In Canada federal and provincial tax credits for political donations and legal provisions for issuing tax receipts have supported efforts to solicit small donations from individual citizens and small businesses

 

USA

Sources: In the USA stipulations of the FECA and decisions of the Supreme Court have distinguished between “hard money” – money directly given to a party, an issue or a candidate’s committees – and funds which are raised beyond the limits set by the FECA – “soft money”. The domain of “soft money” was extended considerably when the Supreme Court, on various occasions, lifted the ban on certain contributions. Contributions by individuals are the most important source of income for US federal parties. Legally these contributions belong to the category of hard money, i.e., they go directly to a candidate’s campaign committee for use at its discretion.

 

Disclosures: Disclosure is at the heart of public supervision of political finance in the USA. The FECA requires candidate committees, party committees and other PACs to file periodic reports disclosing the sources of their funds. Candidates must identify, for example, all PACs and party committees which gave them a contribution. All committees must identify individuals who gave to them more than USD 200 in one year. With respect to independent expenditures the FECA requires persons (and parties since 1991) making such independent expenditures (soft money) to disclose the sources of the funds they used, although there are no limits on independent expenditures.

 

All candidate committees, party committees and other PACs are obliged by the FECA to file periodic reports on the money they raise and spend. In addition, candidates or candidate committees must report all expenditures exceeding USD 200 per year to any individual or vendor. Persons and parties undertaking independent expenditure (soft money) have to report the amounts of their expenses, even though there are no limits on independent expenditures. All reports filed are open for public scrutiny at the FEC, a public agency.

 


Defamation: who should you fear more- Big Govt. or Big Corporate

31 May

Unlike many other countries, India has both civil defamation (if you defame someone, you have to pay compensation), and criminal defamation (you defame someone, you go to jail). Most other countries have removed criminal defamation as a crime from their law books. The result is that in India, not only does a publisher face the threat of having to pay stiff monetary penalties in case he/she defames, someone, there is the bigger threat of being imprisoned for defamation.

These two provisions put together, are increasingly being used by corporate houses to threaten journalists and bloggers from publishing uncomfortable facts. Aparajita Lath, a student of  NUJS, Kolkata, was recently threatened with both civil and criminal action by Times Publishing House Ltd., and their lawyers K. Dutta and Associates for “an excellent summary of the 19 year old litigation between Financial Times Ltd. and Times of India Group over the trademark “Financial Times” & “FT” on the blog SpicyIPIndia. According to Prof. Shamnad Basheer, owner of the Spicyip blog,

“According to the legal notice, served on Aparajita, the publication of her post, “caused an irreparable injury and loss of reputation” to Times Publishing House Ltd. The following paragraph is even better: “Pursuant to the publication of the impugned article our Client has been contacted by several persons, inquiring about the same. Our client has been questioned and subjected to contempt and ridicule and has suffered immense prejudice and loss of goodwill, reputation, standing and goodwill in the industry”. Oh my! And I guess the sky is going to fall on our heads next because of one post on this blog.
The allegedly defamatory post by Aparajita can be accessed here. In the post, she carried an excellent summary of the 19 year old litigation between Financial Times Ltd. and Times of India Group over the trademark “Financial Times” & “FT”. Aparajita’s post had very carefully referenced and summarized a number of articles which appeared in the Mint about the dispute and from the information we have, theMint has not been sued as yet.”
Prof. Shamnad Basheer has also posted here, stating that the magazine, Caravan, was recently served with a legal notice,

“from Agarwal Law Associates (ALA) on 18 April concerning the pending publication of a ‘defamatory’ story on the Attorney General (AG), Goolam Vahanvati. ALA’s clients, the Anil Dhirubhai Ambani Group (ADAG), were understandably flustered as a result of the article’s keen recording of Anil Ambani (head of ADAG) and the AG’s somewhat cosy relationship.The implication of course, was that Ambani’s ties with Vahanvati had a hand in forestalling investigation into the ownership history of Swan Telecom – Ambani’s ‘front’ company at the centre of the notorious 2G scandal…”

Earlier this year, Caravan was also sued by Arindam Chaudhuri, director of the Indian Institute of Planning and Management (IIPM), for defamation, and Mr. Chaudhuri claimed Rs. 50 crore in damages.

“The suit was filed, not in Delhi, where both the IIPM and the magazine’s publisher, Delhi Press, are based, but 2,200 km away in Silchar, Assam, 300 km from Guwahati, Assam’s capital. The IIPM filed the case at the Court of Civil Judge in Silchar district, through one Kishorendu Gupta, who operates Gupta Electrical Engineers in a Silchar suburb, and is the first plaintiff. IIPM is the second plaintiff.

In addition to The Caravan and its proprietors, the suit charges Siddhartha Deb, Penguin (the publisher of the upcoming book by Deb in which the article is a chapter), and Google India (which, the suit alleges, has been “publishing, distributing, giving coverage, circulating, blogging the defamatory, libelous and slanderous articles”).

The civil court in Silchar granted the IIPM a preliminary injunction, enjoining Delhi Press to remove the article in question from their website, ex-parte, without any pre-hearing notice.”

(Sourced from here)

Before this,

“In 2005, the IIPM filed a case against Rashmi Bansal, a blogger and editor of Just Another Magazine (JAM), who published an article in print and online questioning many of the claims made by the IIPM in its brochures and advertisements, which highlighted that the IIPM had not been accredited by any Indian agency such as AICTE, UGC or under other state acts. The IIPM filed a case against Bansal from Silchar, Assam, even though she runs a small independent outfit based in Mumbai. The IIPM managed to get an ex-parte order from the court, forcing Bansal to remove the article from the website. The IIPM also filed for damages.”

 

(Sourced from here)

 

Citizens usually have good reason to believe that the threat of criminal defamation will be used by the government to muzzle the freedom of speech and expression. However, increasingly, there is reason to worry that journalists and bloggers (especially those without the resources to fight back) will face harassment from powerful corporates and business houses. This is even more worrying for a country at our stage of development, where we are welcoming private investment into numerous sectors, allotting and selling off scarce resources to attain higher growth. A free media is important to ensure such transactions and investments are fair and not marked by crony capitalism. Well considered defamation laws are essential to ensure this journalistic freedom and integrity.

 

For more on defamation laws in India, read this.

Tumblr for our blog

30 May

Dear all, please note we have also created a tumblr page for our blog, and will be sharing posts there simultaneously as well. The tumblr page can be accessed at: polityinindia.tumblr.com. 

W.e.f this week, this blog has become a collaborative effort between 8-9 young professionals working broadly in the law and public policy sector. The names of the contributors are visible on the right hand side. We hope to put up quality posts 4-5 times a week, and hope to engage you meaningfully. Please do let us know if you have any comments/suggestions. 

 

– polityinindia

Why have pre-legislative scrutiny for Acts of Parliament?

28 May

This post is part-comment, part-response to Nick Robinson’s post on the Law and Other Things Blog (please do check the blog out!) regarding the NAC’s proposal for having pre-legislative scrutiny of Bills to be passed by Parliament. The National Advisory Council came out with “Draft Recommendations on Pre Legislative Process” for both draft rules, and draft laws or Bills. As a response to Nick’s post, I restrict my focus to the latter i.e. the need for pre-legislative scrutiny of Bills, or draft laws.

The pre-legislative proposal essentially mandates 3 things:

(a) Any public authority/government department has to publish a Statement of Essential Objectives and Principles, on the basis of which it will draft legislation.

(b) After the Statement has been in the public domain for 45 days, the public authority shall draft the legislation and keep it in public domain for 90 days and proactively share with the public.

(c) The public authority will then hold consultations and give comments on the feedback received, before the Bill is finalized and presented to Parliament.

(For those who do not know, most laws are first drafted by the concerned government department, and then discussed, debated and passed in Parliament)

Nick’s main critique of this process is the following:

“…Rules are created by out-of-touch administrators who never have to run for office. Legislation is passed and debated by Parliament – theoretically the central citadel in the Indian democratic system. Not only is Parliament the empowered representatives of the people, but while considering legislation Parliament often solicits outside comment through standing committees.
Should this not be enough? Doesn’t this provide legislation with adequate legitimacy? Shouldn’t Parliament be in charge of demanding proper justification and reason-giving for legislation? Indeed, does draft legislation even have to be based on sound reasoning? After all, legislation – unlike rulemaking – is often the product of compromise between different political factions. A vote is enough. No reasons necessary….”
As Nick says, there is merit to the argument for the NAC’s proposal to democratize the law-making process further since (a) laws are framed by unaccountable bureaucrats, (b) major changes are difficult to make once Bills have been introduced in Parliament, and (c) Parliament has been spending very little time on actual deliberation of legislation.
I believe that Nick is correct when he says that the NAC proposals are essentially a parallel process mirroring the process followed by Parliamentary Standing Committees, and that strengthening the Committee system might be a better idea. It is however, also important to note that there is no legal/ethical bar on pre-legislative scrutiny. The government is free to follow any process it wants in the drafting of legislation. However, a more participatory process may in most cases be better than a less participatory one. The important thing I believe, is to get the participatory process correct. Getting this process right would help prevent the process from getting dominated by civil-society and corporate elites.
On the other hand, it is also important to note that while as a matter of practise, most Bills passed are drafted and introduced by the Government, individual MPs are also free to introduce private-member Bills. Though private member Bills are rarely enacted in to law, individual MPs drafting such laws are also free to pursue any process for drafting their Bill, as per their convenience. They may follow a process more participatory than that of a Government Bill, or merely introduce their personally drafted Bill without any consultation whatsoever. As a matter of principle, this supports Nick’s theoretical position that the law making process does not require pre-legislative scrutiny.
Nick also discusses the importance of getting “…more parliamentary involvement at this earlier drafting stage. MPs (from all parties) could play an important role in giving feedback in drafting…” I would just like to state that a number of Ministries, if not all, have Parliamentary Consultative Committees, with the Minister as Chairman. These Consultative Committees discuss a number of issues regarding the day to day functioning of the Ministry. They do not currently, have any clear-cut role regarding draft legislation. A start could perhaps be made by institutionalizing pre-legislative scrutiny by these parliamentary Consultative Committees.
I believe that creating pre-legislative scrutiny as a process is more a statement of principle as a commitment towards greater democratization. It fits less well within the conventional understanding of the law-making process. However, there are a number of factors which in fact militate towards greater participation through these mechanisms: (a) Patrick French points out the increasing trend towards “hereditary” politics, (b) the erosion of Parliamentary incentives for deliberating legislation, (c) the ease with which Ministries can disregard recommendations of Standing Committees (see Action Taken Reports w.r.t. the higher education Bills), etc.
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New uses of UID/Aadhaar operationalised

26 May

According to a NY Times blog post today, 3 different uses of UID numbers, or Aadhaar were operationalised recently:

Those in the Aadhaar system will now be able to identify themselves by using an eye scanner, which checks the unique patterns in their irises, and providing their ID number. Those with mobile phones can also request a one-time numerical password to be sent by text message, which would be used in conjunction with the user’s ID number. The third service, dubbed e-KYC (“know your customer”), allows users to authorize businesses like banks to receive electronic proof of the users’ identify and home address.

“This is a major step in the direction of enabling Aadhaar holders to avail various services by using the Aadhaar identity platform,” Nandan Nilekeni, chairman of the Unique Identification Authority of India, which oversees Aadhaar, said in a statement.

“It also makes sense for various user agencies — public or private — as they can identify a beneficiary or customer using a secure, economical and paperless format,” he said. “The direct benefit transfer is the biggest benefit, but we will find so many applications in future in banking, telecommunication, insurance, health sectors, including carrying an individual’s health data…
…Residents can update their details at permanent Aadhaar centers set up around the country. At present 500 centers are operational, and another 500 will be opened in the next three months.”

Read more here: http://india.blogs.nytimes.com/2013/05/24/aadhar-program-introduces-instant-verification-services/#more-64350

Back to blog!

25 May

Dear All! Welcome back. I have been away from the blog for a while, but have decided to renew blogging actively again. I hope to give you interesting stuff to read once or twice every week, and engage you in some sort of debate on the stuff I write. So please let me know if there are any suggestions regarding subjects/topics you would like me to write on, and I will try my best to come up with something informative and engaging. Cheers!!

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